Contents - Packages Limited€¦ · Contents 003 Introduction 005 Company Information 006 Highlights 009 Mission Statement 011 Strategic Vision and Objectives 013 Environment, Health

Contents

003 Introduction

005 Company Information

006 Highlights

009 Mission Statement

011 Strategic Vision and Objectives

013 Environment, Health and Safety Policy

015 Quality Policy

017 Notice of Meeting

019 Directors’ Report to the Shareholders

025 Shareholders’ Information

031 Statement of Compliance with the Code of Corporate Governance

035 Statement of Compliance with the Best Practices on Transfer Pricing

037 Review Report to the Members on Statement of Compliance withCode of Corporate Governance and Transfer Pricing

039 Auditors’ Report to the Members

040 Balance Sheet

042 Profit and Loss Account

043 Cash Flow Statement

044 Statement of Changes in Equity

045 Notes to the Accounts

076 Directors’ Report on the Consolidated Accounts to the Shareholders

077 Auditors' Report to the Members on ConsolidatedFinancial Statements

078 Consolidated Financial Statements

116 Ten-year Summary

Packages Limited was established in 1957 as ajoint venture between the Ali Group of Pakistanand Akerlund & Rausing of Sweden, to convertpaper and paperboard into packaging forconsumer industry.

Over the years, the Company continued toenhance its facilities to meet the growing demandof packaging products. Additional capital wasraised from sponsors, International FinanceCorporation and from the public in 1965.

Packages commissioned its own paper mill in1968 having production capacity of 24,000 tonnesof paper and paperboard based on waste paperand agricultural by-products i.e. wheat straw andriver grass. With growing demand the capacitywas increased periodically and in December 2003was about 100 ,000 tonnes per year .

Since 1982, Packages Limited has a joint venturewith Tetra Pak International in Tetra Pak PakistanLimited to manufacture paperboard for liquidfood packaging and to market Tetra Pakpackaging equipment.

In 1993 a joint venture agreement was signedwith Mitsubishi Corporation of Japan for themanufacture of Polypropylene films at theIndustrial Estate in Hattar, NWFP. This project,Tri-Pack Films Limited, commenced productionin June 1995, with equity participation byPackages Limited, Mitsubishi Corporation,Altawfeek Company for Investment Funds, SaudiArabia and general public. Packages Limited owns

33% of Tri-Pack Films Limited’s equity.

In July 1994, Coates Lorilleux Pakistan Limited,in which Packages Limited has 55% ownership,commenced production and sale of printing inks.

In 1996, a joint venture agreement was signedwith Printcare (Ceylon) Limited for theproduction of flexible packaging materials in SriLanka. This project Packages Lanka (Private)Limited commenced production in 1998.Packages Limited now owns 79% of thiscompany.

In 1999-2000 Packages Limited has successfullycompleted the expansion of the flexible packagingline by installation of new rotogravure printingmachine and the expansion of the carton line bya new lemanic rotogravure inline printing andcutting creasing machine. In addition a new 8colour flexo graphic printing machine was alsoinstalled in flexible packaging line in 2001.

Packages Limited is also producing corrugatedboxes from its plant in Karachi from 2002.

In 2003, Packages Limited entered into anagreement with Vimpex of Austria to providemanagement and technical assistance to help inthe operation, production optimization andcapacity expansion of a paperboard mill in Syria.A team from Packages Limited is already thereproviding such services.

Introduction

003

Board of DirectorsAsadullah KhawajaKhalid YacobKirsten RausingPentikainen Markku JuhaRafi Iqbal AhmedSamee-ul-HasanSaulat SaidSyed Hyder AliSyed Wajid Ali(Chairman & Chief Executive)Tariq Iqbal KhanMujeeb Rashid(Alternate to Kirsten Rausing)

AdvisorSyed Babar Ali

Company SecretaryAdi J. Cawasji

Executive CommitteeSyed Wajid Ali - ChairmanRafi Iqbal Ahmed - MemberSaulat Said - MemberKhalid Yacob - MemberSyed Hyder Ali - Member

Audit CommitteeTariq Iqbal Khan – Chairman(Non-Executive Director)Asadullah Khawaja – Member(Non-Executive Director)Saulat Said – Member(Director & General Manager)

Adi J. Cawasji – Secretary

Rating Agency: PACRACompany Rating: AA

AuditorsA.F. Ferguson & Co.Chartered Accountants

Legal AdvisorsHassan & Hassan – LahoreOrr, Dignam & Co. – Karachi

BankersABN Amro BankAskari Commercial Bank LimitedBank Al-Habib LimitedCitibank N.A.Credit Agricole Indosuez The Global French BankDeutsche Bank A.G.Faysal Bank LimitedHabib Bank LimitedHabib Bank A.G. ZurichMashreq Bank Pakistan LimitedMuslim Commercial Bank LimitedStandard Chartered BankUnion Bank LimitedUnited Bank Limited

Head Office & WorksShahrah - e - RoomiP.O. Amer SidhuLahore - 54760, PakistanPABX : 5811541-46, 5811191-94Cable : PACKAGES LAHOREFax : (042) 5811195, 5820147

Karachi FactoryPlot No. 6 & 6/1, Sector 28,Korangi Industrial Area, Karachi - 74900Tel : (021) 5045320, 5045310Fax : (021) 5045330

Registered Office & Regional Sales OfficeIst floor Hilal - e - Ahmer HouseKhayaban - e - Iqbal, Main Clifton RoadKarachi - 75600PakistanPABX : 5833011, 5874047-49

: 5831664, 5831618Cable : PACKAGES KARACHIFax : (021) 5860251

Regional Sales Office2nd Floor, G.D. Arcade73-E, Fazal - ul - Haq Road, Blue AreaIslamabad - 44000PakistanPABX : 2276765, 2276768, 2278632Fax : (051) 2829411

Zonal Sales OfficesRoom No. 117- 1181st floor, Metro PlazaQasim RoadMultan Cantt. - 60000PakistanTel. & Fax: (061) 587370

1st Floor, Room No. 7Glamour CentreMission Road, Sukkur - 65200PakistanTel. & Fax: (071) 26581

2nd Floor, Sitara Tower, Bilal Chowk,Civil Lines, Faisalabad - 38000Tel. & Fax: (041) 629417

Shares RegistrarFerguson Associates (Pvt.) LimitedState Life Building No. 1-AOff: I. I. Chundrigar RoadKarachi - 74000

Web Presencewww.packages.com.pk

Company Information

005

Highlights

6,293.221,036.91

813.5185.00

3,228.666,154.284,651.91

17.119.81

29.2825.2016.44

5,360.88797.23655.3770.00

2,819.215,950.484,250.57

13.796.42

23.8123.2513.60

Invoiced sales-million rupeesProfit before tax-million rupeesProfit after tax-million rupeesCash dividend-percentage of paid up capitalShareholders’ equity-million rupeesTotal assets-million rupeesNet assets employedEarnings per share-rupeesPrice-Earning RatioReturn on Capital Employed (%)Return on Shareholder’s Equity (%)Return on Invested Capital (%)

86,64166,8705,8502,955

47,537,0803,191

5511,115

404

409

72,64259,8085,2363,006

47,537,0803,084

507953333323

Paper and board produced-tonnesPaper and board converted-tonnesPlastic all sorts converted-tonnesNumber of shareholdersNumber of sharesNumber of employeesValue added and its distribution

Employees as remuneration-million rupeesGovernment as taxes-million rupeesShareholders as dividends-million rupeesRetained within the business-million rupees

Year toDecember 31, 2003

Year toDecember 31, 2002

Sales (Rupees in Thousands)

6 Months toDec 31, 2000

2001

1,000

1998-99

2,000

3,000

4,000

5,000

6,000

7,000

1999-00 2002 2003

6,293

5,158

4,1663,926

5,361

2,238

Break-up of SalesFor the year ended December 31, 2003

ConsumerProducts

(12%)

Corrugation(18%)

Paper &Paperboard

(14%)

Pre-press(1%)

Carton(25%)

Flexible(30%)

Earnings per Share-Rupees

2

4

6

8

10

12

14

16

1817.11

0

13.79

8.94

4.07

9.479.33

20011998-99 1999-00 2002 20036 Months toDec 31, 2000

Dividends & Dividend Payout Ratio(Rupees in million)

70.00

60.00

50.00

40.00

30.00

20.00

10.0050

100

150

200

250

300

350

Financial Trends(Rupees in million)


20011998-99 1999-00 2002 2003

4,043

3,633

4,079

2,819

4,094

2,497

4,044

2,286

4,240

2,183

4,507

1,927

684

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00167.90

88.50

60.5066.0060.00

46.82

Market Value Per Share Vs Break up Value Per Share-Rupees

Fixed Assets- Cost Vs FixedCapital Expenditure (Rupees in million)


2001

1,000

1998-99

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1999-00 2002 2003

6,8826,512

5,7745,323

4,641

5,361

Profitability Indicators Percent-%


20011998-99 1999-00 2002 2003

460474500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000


20011998-99 1999-00 2002 2003

41

154

600

Revenue UtilizationFor the year ended December 31, 2003

EmployeeRemuneration

(8%)Other(7%)

Taxation & StatutoryProvisions

(17%)

Profit(12%)

Cost of Sales other thanEmployee Remuneration

(56%)

5.0

10.0

15.0

20.0

25.0

22.4

Capital EmpolyedShareholder’s EquityOperating Profit


20011998-99 1999-00 2002 2003

53.04 50.09 52.52 59.31

19.2

Fixed Assets- Cost

23.2

16.117.0

10.48.5

4.8

19.6

10.1

19.9

8.5

10.9

8.69.28.3

16.3

Return (PAT) on Capital EmployedReturn on Shareholder’s Equity

Operating Profit to Sales

11.6

186482

642

173

91

23

214

333

40.00

49.92

58.57

50.35 50.77

Stock DividendCash DividendDividend Payout Ratio

612221460465 502

Fixed Capital Expenditure

41.00

Market value per share Break-up value per share

76.42

To be a leader in the markets we serve by providing qualityproducts and superior service to our customers, whilelearning from their feed back to set even higher standardsfor our products.

To be a company that continuously enhances its superiortechnological competence to provide innovative solutionsto customer needs.

To be a company that attracts and retains outstanding peopleby creating a culture that fosters openness and innovation,promotes individual growth and rewards initiative andperformance.

To be a company which combines its people, technology,management systems and market opportunities to achieveprofitable growth while providing fair returns to its investors.

To be a company that endeavours to set the highest standardsin corporate ethics in serving the society.

Mission Statement

009

To position ourselves to be a regional supplier of quality packagingand tissue products.

To improve on contemporary measures such as cost, quality, service,speed of delivery and mobilisation.

Keep investing in technology, systems and human resources toeffectively meet the challenges every new dawn brings.

Develop relationships with all our stakeholders based on sustainableco-operation, upholding ethical values, which the shareholders,management and employees represent and continuously strive for.

Strategic Vision and Objectives

011

The Management of Packages Limited realises that we live in a worldwhere resources are finite and the eco-system has a limited capacity toabsorb the load mankind is placing on it. That is why it is our beliefthat we must do everything practically possible to lessen the load weplace on the environment and make every effort so that sustainabledevelopment becomes a reality.

Packages Limited has formulated its environment, health and safety(EH&S) policy to address these issues in a more effective way. It isvery clear to us that these objectives cannot be realised by the effortsof the Management alone. While the general directions are to be providedby the Management, the help of all the employees will be required totransform these ambitions into reality.

It is expected that all employees will do their best to implement thepolicy in its true spirit.

Environment, Health and Safety Policy StatementPackages Limited shall:

1. Minimise its environmental impact, as is economically and practicallypossible.

2. Save raw materials including energy, water and avoid waste.

3. Ensure that all its present and future activities are conducted safely,without endangering the health of its employees, its customers and thepublic.

4. Develop plans and procedures and provide resources to successfullyimplement this policy and for dealing effectively with any emergency.

5. Provide environmental, health and safety training to all employees andother relevant persons to enable them to carry out their duties safelywithout causing harm to themselves, to other individuals and to theenvironment.

6. Ensure that all its activities comply with national environmental, healthand safety regulations.

This policy shall be reviewed as and when required for the bettermentof the same.

Environment, Health and Safety Policy

013

We at Packages Limited are committed to producing quality

products which conform to our customers’ requirements

and strengthen our position as a quality–managed company.

Our pledge is to provide the market with the best quality

products at competitive prices through a customer-driven

and service–oriented, dynamic management team. To meet

this obligation, the company will continue updating of

employee skills by training, acquisition of new technology

and regular re-evaluation of its quality control and assurance

systems.

Appropriate resources of the company will be directed

towards achieving the quality goals through employees’

participation.

Quality Policy

015

Notice is hereby given that the Forty Ninth AnnualGeneral Meeting of Packages Limited will be held atthe Beach Luxury Hotel, Moulvi Tamizuddin KhanRoad, Karachi on Thursday, February 26, 2004 at10:30 A.M. to transact the following ordinarybusiness:-

1. To confirm the minutes of the ExtraordinaryGeneral Meeting held on December 2, 2003.

2. To receive and adopt the audited accounts forthe year ended December 31, 2003, the Reportof the Auditors thereon and the Report of theDirectors.

3. To declare a final dividend of Rs. 8.50 per ordinaryshares of Rs. 10/- each for the year endedDecember 31, 2003 as recommended by theBoard of Directors.

4. To appoint Auditors and to fix their remuneration.

By Order of the Board

Karachi Adi J. CawasjiJanuary 24, 2004 Company Secretary

Notes :

1. The Share Transfer Books of the company willbe closed from February 12, 2004 to February26, 2004 (both days inclusive) for the purposesof entitlement of dividend and to attend theAnnual General Meeting. Transfers received byour Registrar, Ferguson Associates (Pvt.) Limited,State Life Building No. 1-A, Off: I. I. ChundrigarRoad, Karachi-74000 at the close of business onFebruary 11, 2004 will be treated in time for thepurpose of attending the meeting.

2. A member of the company entitled to attendand vote at the General Meeting may appointanother person as his/her proxy to attend andvote instead of him/her. Proxies must be receivedat the Registered Office of the company (FirstFloor, Hilal-e-Ahmer House, Khayaban-e-Iqbal,Main Clifton Road, Karachi-75600) not laterthan 48 hours before the time appointed for theMeeting.

3. Individual CDC account holders shall producetheir original National Identity Cards at the timeof attending the meeting and corporate entitiesshall produce the Boards’ Resolution/Power ofAttorney with specimen signature of the nominee.

4. Shareholders are requested to immediately notify:

(a) any change in their addresses or bankmandate, as registered with the company,

(b) National Tax Number, and

(c) National Identity Card Number to ourRegistrar, Ferguson Associates (Pvt) Limited,State Life Building No. 1-A, Off: I. I.Chundrigar Road, Karachi-74000.

Notice of Meeting

017

Directors’ Report to the Shareholders

The Directors take pleasure in presenting the AnnualReport of Packages Limited along with the AuditedAccounts for the year ended December 31, 2003.

General Review

With the blessings of the Almighty your companyhas achieved the milestones of crossing turnoverfigure of Rupees six billion and profit before tax ofRupees one billion for the first time in the company’shistory.

The nature of the company’s business to a largeextent depends on the derived demand of its industrialcustomers, for whom the year 2003 has proved tobe a good year reflective of general improvement inthe country’s economy.

The company is committed and has constantlyendeavoured to bring improvement in its productiontechnology to contribute to the economy by providingquality packaging to its customers, a safer environmentfor all and revenue to the country’s treasury in theform of taxes. The year under review saw increasein our paper and paperboard capacity as a result ofexpansion carried out last year, investments in newmachinery in the packaging division and streamliningof other processes. New premises for the Karachioffice have been acquired in Clifton area, and theoffice shall shift to these new premises within thecurrent year.

Looking inward, to prepare the company for thechallenges of a free world market economy the needwas felt to re-organize the business according to thedemands of new business realities. As a first stepyour company has strategically set itself by settingup independent Business Units, to be run along thelines of independent companies, with a view toimprove profi tabi l i ty and eff ic iency.

Operating Results

In the year under review your company had invoicedsales of Rs. 6,293 million, which is an increase ofRs. 932 million (17.4 %) on last year figures. Thisincrease in revenue is reflected by an increase inearnings from operations of Rs. 227 million, i.e. an

increase of almost 50 % on the corresponding figureof last year.

The increase in profits is a result of:

• Increase in sales. The sales have shown an increaseof 17% in industrial consumers and 19% in retailconsumers share. The company has also utilizedits enhanced paper manufacturing capacities byintroducing writing/ printing paper in the localmarket which has also contributed to this increase.

• Improvement in gross margin primarily due toproduction efficiencies. These efficiencies wereachieved with the introduction of performanceparameters to measure and track key performanceindices such as waste, machine down time etc.

• Tighter control on expenses.

• Reduction in financial charges, due to better cashmanagement and the general decrease inborrowing costs prevalent in the currenteconomic conditions.

• Steady income from dividends.

Following are the comparative financial results forthe year 2003 with 2002.

2003 2002Financial - Rupees in million

Invoiced sales 6,293 5,361Gross profit 1,194 950Operating profit 684 457Dividend income 458 499Profit before tax 1,037 797Profit after tax 814 655Earnings per share - rupees 17.11 13.79

Manufacturing - quantity in tonnesPaper & Paperboard - production 86,641 72,642Paper & Paperboard - conversion 66,870 59,808Plastics all sorts - conversion 5,850 5,236

The company generated cash of Rs. 885 million fromits operations and Rs. 458 million from dividends.These cash flows were spent on capital expenditureof Rs. 600 million, repayment of loans of Rs. 133million and on payment of dividends of Rs. 332million.

Further investments were made in Packages Lanka(Pvt.) Limited (PLL); our Sri Lankan subsidiary,which has increased our holding to over 79%. Duringthe year an investment of Rs. 20 million was madein “The Resource Group” (TRG). The quoted valueof which has already increased by Rs. 11.4 million.

Marketing Results

Your company primarily deals in five distinct types

019

of markets for its products. In rigid packaging wesell offset cartons mainly for cigarette, tea, soap,detergent, biscuit, shoe and match industries. Inflexible packing different plastic films, aluminum foiland paper, poly-coated paper are combined toproduce laminates of several layers for providingproperties according to requirement. This type ofpackaging is suited to food packaging. We alsoproduce corrugated cartons used for distributionwithin the country and export offresh fruits, garments, shoes and textiles.

To the retail consumers your company markets tissueproducts under the brand name of Rose Petal andTulip. These products include facial tissue paper,toilet paper, kitchen rolls, table napkins, party paperpacks and pocket packs. We also sell paper cups,paper plates and feminine hygiene products.

Most of the paper manufacturing capacity is used tocater to in-house consumption of our conversionunits. The major paper and paperboard productssold to the market are writing, printing, photocopierand computer paper besides the direct sale of boardto Tetra Pak (Pakistan) Limited. Looking collectivelyat all five major categories of products, your companysold 17.4% more than the last year. This increasebasically reflects volume increase as prices remainedmore or less constant during the year.

If we look at the business units’ performanceindependently the paper manufacturing business unitrecorded an increase in sale of almost 45%. This wasachieved by introducing writing, printing, computerand photocopier paper to the local market to serveas a substitute to imported paper.

Exports

Packages Limited has managed to retain its presencein the export market. During the year as in the pastwe supplied flexible packaging materials to the MiddleEastern customers. For the first time your companyexported bleached wheat straw pulp to Europe andto the United States of America.

Customers

We recognize that our strength lies in the strengthof our customers and are committed to providingthem with quality and service. We wish to express

our thanks to our valued customers whose supportand feedback has been invaluable.

Production Overview

A new waste paper plant was added during the firstquarter of the year which has increased the pulpingcapacity by 150 tonnes per day. A new co-extruderwas also inducted into service and this has renderedan increase in production capacity of 150 tonnes permonth. A six colour high speed offset press has beendelivered, which shall start production during thefirst half of the new year. A new folding /gluingmachine and a cutting and creasing machine werealso added during the second quarter.

An effluent treatment plant is being added and thisis aimed at reducing toxic levels in the effluentsreleased into the environs and is a reflection of thecommitment of Packages Limited to environmentconservation and society at large. To meet the growingdemands for tissue products an inter-folder, toiletroll making and napkin printing machines have alsobeen added.

During 2003 emphasis was laid on improving thetechnology of the conversion units. It was the firstcomplete year of operation for our Karachi Corrugatorplant and efforts were made to start the in-houselaboratory testing of corrugated sheets and boxes tofacilitate internal and external customers. By the endof the year the Karachi Corrugator plant has reached67% utilization. Efforts were made to reduce wastein all production units.

Research and Development

Our production facilities are ably supported by ourresearch and development team who can simulatevarious production processes and test any desiredattributes for packaging materials to guide and helpin the production and to meet the particularrequirements of all our customers.

ISO Certification

During the year the ISO 9001 certificates becameobsolete and for the purpose of re-certification onISO 9001 on the new version “2000” was carriedout. The certification body has audited your companyand has recommended certification for all of the

020

Water Conservation

The company is actively trying to implement schemesin water conservancy in its paper manufacturing andsubstantial progress has been made during the yearin energy conservation and water managementsystems in the Paper & Paper Board Division.

Contribution to Society

Your company is proud of its contribution to societyand endeavours through various activities to promotesocial awareness about the environment among thegeneral public. It is our firm belief that the nation’sbiggest asset is its future.

Our Consumer Products are involved in sponsoringplays, dramas and sports’ day events for school andcollege students throughout Pakistan, to promotethese activities. We also sponsor the flower showsin Lahore at the Race Course Ground with theHorticultural Society of Pakistan to provide healthyentertainment for the public.

Tulip brand promotes a clean and healthyenvironment with the help of WWF – Pakistan andhas started sponsoring a campaign of “Zero wasteprogramme”. The project involves around 150 privateand some 50 government schools to create awarenessabout recycling and encourage recycling.

Human Resources

People are our greatest resource and your companyrecognises that each resource has individual talents,mindsets and perceptions. These attributes needattention and a constant drive for improvement.During the course of the year more than a third ofall employees attended both external and in-housetraining sessions. Workshops and training sessionswere also arranged in Urdu to cater for people at alllevels within the organisation.

The biggest initiative was conducting workshops onthe Attitude, Communication and Teamwork (ACT).The main aim of these workshops was to create arealisation of ownership, adequate work balance andresponsibility to work, families and to society at large.

Great emphasis was laid on factory housekeepingand sanitation. In-house courses were conducted on

the Occupational Health and Safety, Hygiene andSanitation and the basic principles of housekeeping.

During the year the third batch of managers hasstarted the Diploma in Business Management, atLahore University of Management Sciences.

Expansion Programme

Capacities of all production areas are being evaluatedto make necessary investments wherever needed tomeet the market demand.

Employees Relations

Working with common and shared objectives, thePackages team of employees and management hasmade year 2003 a success story. This success is aresult of continuous dedicated hard work of allemployees throughout the company. The Directorsrecognize and record their appreciation for thewonderful work put in by the staff and hope togetherthey would make the coming year even moresuccessful.

ERP Developments & Business Process Re-engineering

Presence of a strong ERP system (SAP) has helpedthe company in managing its resources effectivelyand efficiently through availability of real time on-line information.

As a consequence of the restructuring of businessinto Business Units there was a need for certainprocesses to be re-engineered and re-mapped for thenewly formed business units to facilitate and meetthe operational and reporting requirement needs ofSAP.

In another step towards paperless environment,Electronic Time Attendance was introduced duringthe year. Employees have been issued swipe cardsinstead of punch cards and the collection of data isdone via the company’s LAN system.

Corporate Excellence Awards

The Directors are pleased to state that your companywas chosen among the top 25 companies on theKarachi Stock Exchange for the year 2002.

021

Your company’s annual report for the year 2002 wasjudged second in its sector and was given the “BestCorporate Report Award” by a joint committee ofICAP & ICMAP.

Future

The government’s financial managers are predictingthat the growth in year 2004 will be higher than thetargets and manufacturing and service sectors willdo better. Your company looks towards the futurepositively on the basis of future forecasts coupledwith stable macro economic indicators, lending ratesremaining at the present level in the near future andimproved trade opportunities with the SAARCcountries and Afghanistan.

We have one year period before the coming of WTOregime in 2005, where trade barriers and tariffanomalies will not prove a hindrance for businessconcerns. Post WTO scenario will prove to be abattle for survival of the fittest companies, and yourcompany feels that it is tuned well to face thesechallenges because of the following strengths:

1. Our major customers are multinational companiesand we have experience in matching theinternational quality expected by large companies.We are committed to take the lead and becomea leading regional player as a provider of packagingmaterials.

2. Our dependable delivery schedules with shorterlead times for domestic customers, at competitiveprices.

3. Our ability to provide solutions to customers’requirements/demands with the help of RD&Cand creative design departments.

4. Our ability to satisfy the diversified demand inpackaging materials of our customers.

Appropriation

The Directors have recommended a payment of cashdividend of 85 percent (Rs. 8.50 per share) on thepaid up capital of the company.

Accordingly the following appropriations have beenmade:-

(Rupees in thousand)

The company made an after tax profit of 813,513

adding thereto the unappropriatedprofit at December 31, 2002 214

makes available for appropriation a sum of 813,727

from the sum the Directors recommend paymentof a cash dividend of Rs. 8.50 per share 404,065

and transfer to general reserve 409,000

813,065and propose to carry forward

to 2004 the balance of 662

Auditors

The present auditors M/s A.F. Ferguson & Co.,Chartered Accountants retire and offer themselvesfor reappointment. As suggested by the AuditCommittee, the Board of Directors has recommendedtheir reappointment as auditors of the company forthe year ending December 31, 2004 at a fee to bemutually agreed. Consent of the Securities andExchange Commission of Pakistan has been soughtin order to comply with the Listing Regulations.

Compliance with the Code of CorporateGovernance

The requirements of the Code of CorporateGovernance set out by the Karachi, Lahore andIslamabad Stock Exchanges in their Listing Rules,relevant for the year ended December 31, 2003 havebeen adopted by the company and have been dulycomplied with. A statement to this effect is annexedwith the report.

Board of Directors

Since the holding of the last Annual General Meeting,held on February 27, 2003 Mr. Seppo Hietanen,nominee of Stora Enso AB, Sweden has resignedand Mr. Pentikainen Markku Juha was appointed inhis place.

022

1. Syed Wajid Ali 3

(Chairman & Chief Executive)

2. Mr. Asadullah Khawaja 5

(Nominee of Investment Corporation of Pakistan)

3. Mr. Tariq Iqbal Khan 5

(Nominee of National Investment Trust Limited)

4. Mr. Samee-ul-Hasan 3

(Nominee of State Life Insurance Corporation of Pakistan)

5. Mr. Rafi Iqbal Ahmed 5

6. Mr. Saulat Said 5

7. Mr. Khalid Yacob 5

8. Syed Hyder Ali 1

9. Ms. Kirsten Rausing -

10. Mr. Seppo Hietanen -

11. Mr. Pentikainen Markku Juha -

12. Mr. Mujeeb Rashid 4

(Alternate to Ms. Kirsten Rausing)

Leave of absence was granted to Directors who could not attend the Board Meetings.

The Board of Directors wishes to record its appreciation for the valuable services rendered by Mr. SeppoHietanen and extends its warm welcome to Mr. Pentikainen Markku Juha.

During the year five board meetings were held and the number of meetings attended by each director isgiven hereunder:-

No. of MeetingsAttended

Sr.No. Name of Director

Statement of Ethics and Business Practices

The Board has adopted the statement of Ethics andBusiness Practices. All employees are informed ofthis statement and are required to observe these rulesof conduct in relation to customers, suppliers andregulations.

Audit Committee

An Audit Committee of the Board has been inexistence since the enforcement of the Code ofCorporate Governance, which comprises of two

non-executive directors (including its Chairman) andone executive director. During the year four meetingsof the Committee were held. The Committee has itsterms of reference which were determined by theBoard of Directors in accordance with the guidelinesprovided in the Listing Regulations.

Material Changes

There have been no material changes since December31, 2003 and the company has not entered into anycommitment, which would affect its financial positionat that date.

023

Corporate and Financial Reporting Frame work

• The financial statements together with thenotes thereon have been drawn up by themanagement in conformity with theCompanies Ordinance, 1984. These Statementspresent fairly the company’s state of affairs,the results of its operations, cash flow andchanges in equity.

• Proper books of accounts have beenmaintained by the company.

• Appropriate accounting policies have beenconsistently applied in the preparation offinancial statements and accounting estimatesare based on reasonable and prudentjudgement.

• The International Accounting Standards, asapplicable in Pakistan, have been followed inthe preparation of financial statements.

• The system of internal controls is sound indesign and has been effectively implementedand monitored.

• There are no doubts upon the company’sability to continue as a going concern.

• There has been no departure from the bestpractices of Corporate Governance, as detailedin the listing regulations.

• There has been no departure from the bestpractices of transfer pricing.

• The key operating and financial data for thelast ten years is annexed.

• The value of investments of provident, gratuityand pension funds based on their auditedaccounts as on December 31, 2003 were thefollowing:

Provident Fund Rs. 405.431 million

Gratuity Fund Rs. 173.052 million

Pension Fund Rs. 228.081 million

The value of investment includes accruedinterest.

• Trading of Shares by Chief Executive,Directors, Chief Financial Officer, CompanySecretary, their spouses and minor children:

Purchase of Shares: No. of Shares

DirectorsChief Executive Officer NilSyed Hyder Ali 61,056

Chief Financial Officer NilCompany Secretary NilSpouses Nil

Sale of Shares Nil

Pattern of Shareholding

The pattern of shareholding is included in the annexedshareholders’ information.

(Syed Wajid Ali)Chairman & Chief ExecutiveLahore, January 24, 2004

024

Listing on Stock Exchanges

Packages Limited equity shares are listed on Karachi,Lahore and Islamabad Stock Exchanges.

Listing Fee

The annual listing fee for the financial year 2003-04has been paid to all the three Stock Exchanges withinthe prescribed time limit.

Stock Code

The stock code for dealing in equity shares ofPackages Limited at KSE, LSE and ISE is PKGS.

Shares Registrar

Packages Limited shares department is operated byFerguson Associates (Pvt.) Limited. and services over2,900 shareholders. It is managed by a well-experienced team of professionals and is equippedwith the necessary infrastructure in terms of computerfacilities and comprehensive set of systems andprocedures for conducting the Registration function.The essential and outstanding ingredient of theRegistration services is the involvement of CharteredAccountants in the quality control aspect ofRegistration activities.

The Shares Registrar has online connectivity withCentral Depository Company of Pakistan Limited.It undertakes activities pertaining to dematerializationof shares, share transfers, transmissions, issue ofduplicate/re-validated dividend warrants, issue ofduplicate/replaced share certificates, change of addressand other related matters.

For assistance, shareholders may contact either theRegistered Office or the Shares Registrar.

Contact persons:

Mr. Rafique KhatriTel.: 92-21-5831618, 5831664, 5833011Fax : 92-21-5860251

Mr. Ovais KhanTel.: 92-21-2426682-6, 2426711-5Fax : 92-21-2415007, 2427938

Service Standards

Packages has always endeavoured to provide investorswith prompt services. Listed below are variousinvestor services and the maximum time limits setfor their execution:

Registered Office

First Floor, Hilal-e-Ahmer HouseKhayaban-e-IqbalMain Clifton RoadKarachi - 75600Tel.: 92-21-5831618, 5831664, 5833011Fax : 92-21-5860251

Shares Registrar

Ferguson Associates (Pvt.) LimitedGround Floor, State Life Building No.1-A,Off: I. I. Chundrigar RoadKarachi - 74000

For request received Over the counterthrough post

Transfer of shares 30 days after receipt 30 days after receiptTransmission of shares 30 days after receipt 30 days after receiptIssue of duplicate share certificates 30 days after receipt 30 days after receiptIssue of duplicate dividend warrants 5 days after receipt 5 days after receiptIssue of re-validated dividend warrants 5 days after receipt 5 days after receiptChange of address 2 days after receipt 15 minutes

Shareholders’ Information

025

Well qualified personnel of the Shares Registrar havebeen entrusted with the responsibility of ensuringthat services are rendered within the set time limits.

Statutory Compliance

During the year the company has complied with allapplicable provisions, filed all returns/forms andfurnished all the relevant particulars as required underthe Companies Ordinance, 1984 and allied rules, theSecurities and Exchange Commission of Pakistan(SECP) Regulations and the listing requirements.

Dematerialisation of Shares

The equity shares of the company are under thedematerialisation category. As of date 43.69% of theequity shares of the company have been dematerialisedby the shareholders.

Dividend Announcement

The Board of Directors of the company has proposeda dividend of 85% (Rs. 8.50 per share of Rs. 10) forthe financial year ended December 31, 2003 subjectto approval by the shareholders of the company atthe Annual General Meeting (2002: 70% cash dividendRs. 7.00 per share of Rs. 10).

Book Closure Dates

The Register of Members and Share Transfer Booksof the Company will remain closed from February12, 2004 to February 26, 2004 both days inclusive.

Dividend Remittance

Dividend declared and approved at the AnnualGeneral Meeting will be paid well before the statutorytime limit of 45 days:

(i) For shares held in physical form:To shareholders whose names appear in theRegister of Members of the company afterentertaining all requests for transfer of shareslodged with the company on or before the bookclosure date.

(ii) For shares held in electronic form:To shareholders whose names appear in the

statement of beneficial ownership furnished byCDC as at end of business on book closure date.

Withholding of Tax & Zakat on Dividend

As per the provisions of the Income Tax Ordinance,2001, Income Tax is deductible at source by theCompany:

(a) on shareholder which is a public company or aninsurance company 5%; and

(b) in any other case 10%.

Zakat is also deductible at source from the dividendat the rate of 2.5% of the face value of the share,other than corporate holders or individuals who haveprovided an undertaking for non-deduction.

Dividend Warrants

Cash dividends are paid through dividend warrantsaddressed to the shareholders whose names appearin the Register of Shareholders at the date of bookclosure. Shareholders are requested to deposit thosewarrants into their bank accounts, at their earliest,thus helping the company to clear the unclaimeddividend account.

Investors’ Grievances

To date none of the investors or shareholders havefiled any letter of complaints against any serviceprovided by the company to its shareholders.

Legal Proceedings

No case has ever been filed by shareholders againstthe company for non-receipt of shares/refund.

General Meetings & Voting Rights

Pursuant to section 158 of the Companies Ordinance,1984, Packages holds a General Meeting ofshareholders at least once a year. Every shareholderhas a right to attend the General Meeting. The noticeof such meeting is sent to all the shareholders at least21 days before the meeting and also advertised in atleast one English and one Urdu newspaper havingcirculation in Karachi, Lahore and Islamabad.

026

Shareholders having holding of at least 10% of votingrights may also apply to the Board of Directors tocall for meeting of shareholders, and if Board doesnot take action on such application within 21 days,the shareholders may themselves call the meeting.

All shares issued by the company carry equal votingrights. Generally, matters at the general meetings aredecided by a show of hands in the first instance.Voting by show of hands operates on the principleof "One Member-One Vote". If majority ofshareholders raise their hands in favour of a particularresolution, it is taken as passed, unless a poll isdemanded.

Since the fundamental voting principle in a companyis "One Share-One Vote", voting takes place by apoll, if demanded. On a poll being taken, the decisionarrived by poll is final, overruling any decision takenon a show of hands.

Proxies

Pursuant to Section 161 of the Companies Ordinance,1984 and according to the Memorandum and Articlesof Association of the Company, every shareholderof the Company who is entitled to attend and voteat a General Meeting of the Company can appointanother person as his/her proxy to attend and vote

instead of him/her. Every notice calling a generalmeeting of the Company contains a statement thata shareholder entitled to attend and vote is entitledto appoint a proxy, who ought to be a member ofthe Company.

The instrument appointing a proxy (duly signed bythe shareholder appointing that proxy) should bedeposited at the office of the Company not less thanforty-eight hours before the meeting.

Web Presence

Updated information regarding the Companycan be accessed at Packages Limited website,www.packages.com.pk. The website contains the latestfinancial results of the Company together with theCompany’s profile, the corporate philosophy andmajor products.

027

Number of shareholders Total shares heldFrom

1101501

10015001

100011500120001250013000135001400014500150001550016000165001700017500180001850019000195001

100001105001110001115001120001125001130001135001140001145001150001155001165001170001175001185001190001200001205001210001215001270001280001285001295001340001345001375001380001390001395001400001410001430001460001505001510001540001555001620001675001810001990001

10700011385001148000117400011785001275000151700019225001

S h a r e h o l d i n g

To

Shareholding Pattern

The shareholding pattern of the equity share capital of the Company as at December 31, 2003 is as follows:

100500

10005000

100001500020000250003000035000400004500050000550006000065000700007500080000850009000095000

100000105000110000115000120000125000130000135000140000145000150000155000160000170000175000180000190000195000205000210000215000220000275000285000290000300000345000350000380000385000395000400000405000415000435000465000510000515000545000560000625000680000815000995000

10750001390000148500017450001790000275500051750009230000

1,483536238386107429

20132

11454422342513512114321321211121112111112111111111111111111111111

2,955

26,949143,542177,142908,096782,678518,713153,822451,119357,89863,865

405,310175,258236,164210,218231,006125,125131,700216,203306,335168,615435,70594,881

289,199511,061107,000224,971116,398124,625503,388396,607279,606144,728446,311305,375158,744332,319172,350176,458189,713381,187203,715206,748210,871436,389275,000284,546289,287298,500342,297696,004378,655382,479392,015400,000401,943413,500431,905462,933508,247510,858544,049558,100620,458675,297813,090990,233

1,072,2491,387,1251,483,3621,744,7821,786,0262,753,5685,174,1169,228,349

47,537,080

028

Shareholding Pattern

The shareholding pattern of the equity share capital of the Company as at December 31, 2003 is as follows:

1 Associated Companies, Undertakingsand Related Parties 7 11,272,061 23.71

2 NIT and ICP 25 9,651,638 20.303 Directors, CEO and their Spouses 8 1,719,634 3.614 Executives 9 2,589,837 5.455 Public Sector Companies and

Corporations 15 3,216,572 6.776 Banks, Development Finance Institutions, Non-Banking Finance

Institutions, Insurance Companies, Modaraba and Mutual Funds 37 3,762,958 7.92

7 Others 71 7,314,852 15.398 Individuals 2,783 8,009,528 16.85

2,955 47,537,080 100.00

Associated Companies, Undertakings and Related PartiesINTERNATIONAL GENERAL INSURANCE CO. OF PAKISTAN LIMITED 2 9,335,349LOADS LIMITED 1 42,500TREET CORPORATION LIMITED 1 298,500TRUSTEES PACKAGES LTD. EMPLOYEES PROVIDENT FUND 1 1,483,362TRUSTEES PACKAGES LTD. MANAGEMENT STAFF PENSION FUND 1 104,500TRUSTEES PACKAGES LTD. EMPLOYEES GRATUITY FUND 1 7,850

NIT and ICP1ST ICP MUTUAL FUND LOT 'A' 1 2,5002ND ICP MUTUAL FUND 1 73,3643RD ICP MUTUAL FUND LOT 'A' 1 284,5464TH ICP MUTUAL FUND LOT 'A' 1 30,5006TH ICP MUTUAL FUND 1 26,3507TH ICP MUTUAL FUND 1 218,8249TH ICP MUTUAL FUND 1 203,71511TH ICP MUTUAL FUND LOT 'A' 1 392,01512TH ICP MUTUAL FUND LOT 'A' 1 347,90413TH ICP MUTUAL FUND 1 348,10014TH ICP MUTUAL FUND 1 13,65615TH ICP MUTUAL FUND LOT 'A' 1 70,92317TH ICP MUTUAL FUND 1 210,87119TH ICP MUTUAL FUND LOT 'A' 1 86,62520TH ICP MUTUAL FUND LOT 'A' 1 44,50021ST ICP MUTUAL FUND LOT 'A' 1 83,67922ND ICP MUTUAL FUND 1 217,56523RD ICP MUTUAL FUND LOT 'A' 1 89,95424TH ICP MUTUAL FUND 1 110,01925TH ICP MUTUAL FUND LOT 'A' 1 620,458INVESTMENT CORPORATION OF PAKISTAN (SEMF) 1 990,233INVESTMENT CORPORATION OF PAKISTAN 2 8,645NATIONAL BANK OF PAKISTAN, TRUSTEE DEPTT. (NIT) 1 5,174,116NATIONAL INVESTMENT TRUST LTD. 1 2,576

DirectorsKHALID YACOB 1 577RAFI IQBAL AHMED 2 37,615SAULAT SAID 1 11,050SYED HYDER ALI 2 1,231,855SYED WAJID ALI 2 438,537

Directors’ spouses and minor children NIL NIL

CEO’s spouse and minor children NIL NIL

Executives 9 2,589,837

Public Sector Companies and Corporations 15 3,216,572

Banks, Development Finance Institutions, Non-Banking Finance Institutions,Insurance Companies, Modaraba and Mutual Funds 37 3,762,958

Shareholders holding 10% or more voting interestINTERNATIONAL GENERAL INSURANCE CO. OF PAKISTAN LIMITED 2 9,335,349NATIONAL BANK OF PAKISTAN,TRUSTEE DEPTT. (NIT) 1 5,174,116

S.No. Shareholders' category No. of shareholders % ageNo. of shares

Information as required under the Code of Corporate Governance

Shareholders' category Number ofshareholders

Number ofshares held

029

Share Price/Volume

The monthly high and low prices and the volume of shares traded on the Karachi Stock Exchange (KSE) during thefinancial year 2003 are as under:

January 93.95 85.85 1,551,000February 90.00 81.75 255,500March 91.00 81.70 266,000April 109.00 91.00 761,500May 123.00 110.00 697,000June 135.00 118.00 458,500July 168.55 135.00 1,131,000August 190.00 160.00 1,197,000September 172.00 150.10 220,000October 169.25 145.00 174,000November 164.00 140.00 20,500December 171.00 162.00 258,300

Volume ofshares traded

Month

Share price on the KSE (Rs.)

Highest Lowest

030

This statement is being presented to complywith the Code of Corporate Governancecontained in the listing regulations of Karachi,Lahore and Islamabad stock exchanges forthe purpose of establishing a framework ofgood governance, whereby a listed companyis managed in compliance with the bestpractices of corporate governance.

The company has applied the principlescontained in the Code in the followingmanner:

1. The company encourages representation ofindependent non-executive directors on itsBoard. At present the Board includes at leastfive independent non-executive directors. Weshall also encourage minority representationon the Board when next election is due.

2. The directors have confirmed that none ofthem is serving as a director in more than tenlisted companies, including this company,except for Mr. Tariq Iqbal Khan who hasbeen specifically exempted by Securities andExchange Commission of Pakistan forholding directorship in more than ten listedcompanies.

3. All the resident directors of the company areregistered as taxpayers and none of them hasdefaulted in payment of any loan to a bankingcompany, a DFI or an NBFI or, being amember of a stock exchange, has beendeclared as a defaulter by that stock exchange.

4. A casual vacancy occurring in the Board onDecember 1, 2003 was filled up by thedirectors on the same day.

5. The company has prepared a ‘Statement ofEthics and Business Practices’, which hasbeen signed by all the directors and employeesof the company.

6. The Board has developed a vision/missionstatement, overall corporate strategy andsignificant policies of the company. A

complete record of particulars of significantpolicies along with the dates on which theywere approved or amended has beenmaintained.

7. All the powers of the Board have been dulyexercised and decisions on materialtransactions have been taken by the Board.There were no new appointments of the CEOand other executive directors during the year.

8. The meetings of the Board were presidedover by the Chairman except for two meetingsfor which leave of absence was granted bythe Board, and the Board met at least oncein every quarter. Written notices of the Boardmeetings, along with agenda and workingpapers, were circulated at least seven daysbefore the meetings. The minutes of themeetings were appropriately recorded andcirculated.

9. The Board arranged one orientation coursefor its directors to apprise them of their dutiesand responsibilities.

10. There was no new appointment of CFO,Company Secretary or Head of Internal Auditduring the year.

11. The directors’ report for this year has beenprepared in compliance with the requirementsof the Code and fully describes the salientmatters required to be disclosed.

12. The financial statements of the company wereduly endorsed by CEO and CFO beforeapproval of the Board.

13. The directors, CEO and executives do nothold any interest in the shares of the companyother than that disclosed in the pattern ofshareholding.

14. The company has complied with all thecorporate and financial reporting requirementsof the Code.

Statement of Compliance with theCode of Corporate Governancefor the year ended December 31, 2003

031

15. The Board has formed an audit committee.It comprises of three members, of whom twoare non-executive directors including thechairman of the committee.

16. The meetings of the audit committee wereheld at least once every quarter prior toapproval of interim and final results of thecompany and as required by the Code. Theterms of reference of the committee havebeen formed and advised to the committeefor compliance.

17. The Board has set-up an effective internalaudit function.

18. The statutory auditors of the company haveconfirmed that they have been given asatisfactory rating under the quality controlreview programme of the Institute ofChartered Accountants of Pakistan, that they

or any of the partners of the firm, their spousesand minor children do not hold shares of theCompany and that the firm and all its partnersare in compliance with InternationalFederation of Accountants (IFAC) guidelineson code of ethics as adopted by Institute ofChartered Accountants of Pakistan.

19. The statutory auditors or the personsassociated with them have not been appointedto provide other services except in accordancewith the listing regulations and the auditorshave confirmed that they have observed IFACguidelines in this regard.

20. We confirm that all other material principlescontained in the Code have been compliedwith.

(Syed Wajid Ali)Chairman & Chief ExecutiveJanuary 24, 2004

033

Statement of Compliance with theBest Practices on Transfer Pricingfor the year ended December 31, 2003

035

The company has fully complied with the best practices on Transfer Pricing as contained in the ListingRegulation No. 38 of the Karachi Stock Exchange.

(Syed Wajid Ali)Chairman & Chief ExecutiveLahore, January 24, 2004

We have reviewed the statement of compliance withthe best practices contained in the Code of CorporateGovernance and Transfer Pricing regulation preparedby the Board of Directors of Packages Limited tocomply with the Listing Regulation No. 37 and 38of the Karachi Stock Exchange, chapter XIII andXIV of Lahore Stock Exchange and chapter XI andXII of Islamabad Stock Exchange where the companyis listed.

The responsibility for compliance with the Code ofCorporate Governance and Transfer Pricingregulation is that of the Board of Directors of thecompany. Our responsibility is to review, to theextent where such compliance can be objectivelyverified, whether the statement of compliance reflectsthe status of the company’s compliance with theprovisions of the Code of Corporate Governance,Transfer Pricing regulation and report if it does not.A review is limited primarily to inquiries of thecompany personnel and review of various documentsprepared by the company to comply with Code andTransfer Pricing regulation.

As part of our audit of financial statements we arerequired to obtain an understanding of the accountingand internal control systems sufficient to plan the

audit and develop an effective audit approach. Wehave not carried out any special review of the internalcontrol system to enable us to express an opinion asto whether the Board’s statement on internal controlcovers all controls and the effectiveness of suchinternal controls.

Based on our review nothing has come to ourattention which causes us to believe that the statementof compliance does not appropriately reflect thecompany’s compliance, in all material respects, withthe best practices contained in the Code of CorporateGovernance and Transfer Pricing regulation asapplicable to the company for the year endedDecember 31, 2003.

A. F. FERGUSON & CO.Chartered AccountantsLahore, January 24, 2004

Review Report to the Members on Statement of Compliancewith Code of Corporate Governance and Transfer Pricing

037

We have audited the annexed balance sheet ofPackages Limited as at December 31, 2003 and therelated profit and loss account, cash flow statementand statement of changes in equity together with thenotes forming part thereof, for the year then endedand we state that we have obtained all the informationand explanations which, to the best of our knowledgeand belief, were necessary for the purposes of ouraudit.

It is the responsibility of the company’s managementto establish and maintain a system of internal control,and prepare and present the above said statementsin conformity with the approved accounting standardsand the requirements of the Companies Ordinance,1984. Our responsibility is to express an opinion onthese statements based on our audit.

We conduct our audit in accordance with the auditingstandards as applicable in Pakistan. These standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the above saidstatements are free of any material misstatement. Anaudit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the abovesaid statements. An audit also includes assessing theaccounting policies and significant estimates madeby management, as well as, evaluating the overallpresentation of the above said statements. We believethat our audit provides a reasonable basis for ouropinion and, after due verification, we report that:

(a) in our opinion, proper books of account havebeen kept by the company as required by theCompanies Ordinance, 1984;

(b) in our opinion

(i) the balance sheet and profit and lossaccount together with the notes thereonhave been drawn up in conformity withthe Companies Ordinance, 1984, andare in agreement with the books ofaccount and are further in accordance

with accounting policies consistentlyapplied;

(ii) the expenditure incurred during theyear was for the purpose of thecompany’s business; and

(iii) the business conducted, investmentsmade and the expenditure incurredduring the year were in accordance withthe objects of the company;

(c) in our opinion and to the best of ourinformation and according to the explanationsgiven to us, the balance sheet, profit and lossaccount, cash flow statement and statementof changes in equity together with the notesforming part thereof conform with approvedaccounting standards as applicable in Pakistan,and, give the information required by theCompanies Ordinance, 1984, in the mannerso required and respectively give a true andfair view of the state of the company’s affairsas at December 31, 2003 and of the profit, itscash flows and changes in equity for the yearthen ended; and

(d) in our opinion zakat deductible at source underthe Zakat and Ushr Ordinance, 1980 (XVIIIof 1980), was deducted by the company anddeposited in the Central Zakat Fundestablished under section 7 of that Ordinance.


Auditors’ Report to the Members

039

Equity and Liabilities

Share Capital and Reserves

Authorised capital 60,000,000 (2002: 60,000,000)

ordinary shares of Rs. 10 each 600,000 600,000Issued, subscribed and paid up capital 47,537,080 (2002: 47,537,080)

ordinary shares of Rs. 10 each 3 475,371 475,371Reserves 4 2,752,625 2,343,625Unappropriated profit 662 214

3,228,658 2,819,210

Non Participatory Redeemable Capital Secured 5 - 50,000Un-secured 6 850,000 850,000

850,000 900,000

Long-Term and Deferred Liabilities

Liabilities against assets subject to finance lease 7 1,702 35,200Other payables - secured 8 4,870 15,108Deferred liabilities 9 566,681 481,048

573,253 531,356 Current Liabilities Current portion of

Non-participatory redeemable capital - secured 5 50,000 100,000Liabilities against assets subject to finance lease 7 35,986 35,200Other payables - secured 8 10,238 -

Finances under mark up arrangements - secured 10 499,115 736,033Creditors, accrued and other liabilities 11 502,969 495,918Proposed dividend 404,065 332,760

1,502,373 1,699,911Contingencies and Commitments 12 - -

6,154,284 5,950,477

Note (Rupees in thousand)20022003

Balance Sheetas at December 31, 2003

040

Assets


Operating fixed assetsTangible 13.1 2,782,007 2,746,361Intangible 13.2 28,071 65,928

Investment property 14 14,842 15,710Assets subject to finance lease 15 129,082 137,500Capital work-in-progress 16 344,747 196,902

3,298,749 3,162,401

Other Long-Term Assets

Long-term investments 17 643,461 570,628Long-term loans, deposits and other receivables 18 3,981 3,679Retirement and other benefits 19 37,336 26,732

684,778 601,039

Current Assets

Stores and spares 20 318,880 299,638Stock-in-trade 21 844,120 876,207Trade debts 22 577,548 543,218Loans, advances, deposits, prepayments and

other receivables 23 332,043 379,165Cash and bank balances 24 98,166 88,809

2,170,757 2,187,037

6,154,284 5,950,477

The annexed notes form an integral part of these accounts.


041

Syed Wajid AliChief Executive

Tariq Iqbal KhanDirector

SalesLocal sales 6,243,603 5,298,653Export sales 49,616 62,231

6,293,219 5,360,884Less: Sales tax and excise duty 848,992 734,101

Commission 8,038 5,110857,030 739,211

5,436,189 4,621,673Less: Cost of goods sold 25 4,242,476 3,672,114

Gross profit 1,193,713 949,559Selling, administration and general expenses 26 509,784 489,885Operating profit 683,929 459,674Other income 27 574,448 578,280

1,258,377 1,037,954Financial charges 28 151,308 176,800Other charges 29 70,164 63,929

221,472 240 ,729Profit before taxation 1,036,905 797,225Provision for taxation 30 223,392 141,853

Profit after taxation 813,513 655,372Unappropriated profit brought forward 214 602

Available for appropriation 813,727 655,974Appropriations:

Transferred to general reserve 409,000 323,000Proposed dividend Rs. 8.50 per share(2002: Rs. 7.00 per share) 404,065 332,760

813,065 655,760Unappropriated profit carried forward 662 214

Earnings per share Rupees 39 17.11 13.79



Profit and Loss Accountfor the year ended December 31, 2003

042



Cash flow from operating activities:

Cash generated from operations 37 1,137,599 772,899Financial charges paid (162,918) (213,126)Taxes paid (61,273) (247,361)Payments for accumulating compensated absences (5,135) (6,624)Retirement and other benefits paid (23,415) (19,312)

Net cash from operating activities 884,858 286,476

Cash flow from investing activities:

Fixed capital expenditure (599,824) (502,451)Net (increase)/decrease in long-term loans, deposits

and other receivables (302) 481Sale proceeds of fixed assets 28,951 7,206Dividend received 457,554 498,865Long-term investments (60,480) (54,065)

Net cash used in investing activities (174,101) (49,964)

Cash flow from financing activities:

Proceeds from redeemable capital,long-term loans and other payables - 4,870

Repayment of redeemable capital,long-term loans and other payables (100,000) (641,321)

Payment of finance lease liabilities (32,712) (35,200)Dividend paid (331,770) (213,120)

Net cash used in financing activities (464,482) (884,771)

Net increase/(decrease) in cash and cash equivalents 246,275 (648,259)Cash and cash equivalents at the beginning of the year (647,224) 1,035Cash and cash equivalents at the end of the year 38 (400,949) (647,224)



Cash Flow Statementfor the year ended December 31, 2003

043



Balance as on December 31, 2001 475,371 203,589 1,817,036 602 2,496,598

Net profit for the year - - - 655,372 655,372

Transferred from profit and loss account - - 323,000 (323,000) -

Dividend - final Rs. 7.00 per share - - - (332,760) (332,760)


Net profit for the year - - - 813,513 813,513

Transferred from profit and loss account - - 409,000 (409,000) -

Proposed dividend - Rs. 8.50 per share - - - (404,065) (404,065)


Generalreserve

Unappro-priatedprofit

Sharecapital

Sharepremium Total

( R u p e e s i n t h o u s a n d )

Statement of Changes in Equityfor the year ended December 31, 2003

044



1. Legal status and nature of business

The company is incorporated in Pakistan andis listed on Karachi, Lahore and IslamabadStock Exchanges. It is principally engaged inmanufacture and sale of paper, paperboard,packaging materials and tissue products.

2. Significant accounting policies

2.1 Basis of preparation

These accounts have been prepared inaccordance with the requirements ofCompanies Ordinance, 1984 and accountingstandards issued by the InternationalAccounting Standards Committee (IASC) andinterpretations issued by the StandingInterpretations Committee of the IASC, asapplicable in Pakistan except where provisionsof the Companies Ordinance, 1984 requireotherwise in which case such provisions havebeen applied.

2.2 Accounting convention

These accounts have been prepared under thehistorical cost convention, modified bycapitalization of exchange differences referredto in note 2.20, except for revaluation ofcertain financial instruments at fair value andrecognition of certain employee retirementbenefits at present value.

2.3 Taxation

Current

Provision of current tax is based on the taxableincome for the year determined in accordancewith the prevailing law for taxation of income.The charge for current tax is calculated usingprevailing tax rates or tax rates expected toapply to the profit for the year if enacted. Thecharge for current tax also includesadjustments, where considered necessary, toprovision for tax made in previous years arisingfrom assessments framed during the year forsuch years.

Deferred

Deferred tax is accounted for using the balance

sheet liability method in respect of alltemporary differences arising from differencesbetween the carrying amount of assets andliabilities in the financial statements and thecorresponding tax bases used in thecomputation of the taxable profit. Deferredtax liabilities are generally recognised for alltaxable temporary differences and deferredtax assets are recognized to the extent that itis probable that taxable profits will be availableagainst which the deductible temporarydifferences, unused tax losses and tax creditscan be utilised.

Deferred tax is calculated at the rates that areexpected to apply to the period when thedifferences reverse based on tax rates thathave been enacted or substantively enactedby the balance sheet date. Deferred tax ischarged or credited in the income statement,except in the case of items credited or chargedto equity in which case it is included in equity.

2.4 Fixed capital expenditure anddepreciation/amortisation

2.4.1 Operating fixed assets

Tangible

Operating fixed assets except freehold landare stated at cost less accumulated depreciationand any identified impairment loss. Freeholdland is stated at cost less any identifiedimpairment loss. Cost in relation to certainplant and machinery signifies historical costand exchange differences referred to in note2.20 and interest, mark up etc. in note 2.21. Depreciation on all operating fixed assets ischarged to profit on the straight line methodso as to write off the historical cost of an assetover its estimated useful life at the followingannual rates:

Plant and machinery 6.25% to 20%

Buildings 2.5% to 10%

Other equipment 10% to 33.33%

Furniture and fixtures 10% to 20%

Vehicles 20%

Notes To The Accountsfor the year ended December 31, 2003

045

Intangible

Expenditure incurred to acquire Computersoftware and SAP Enterprise ResourcePlanning System (ERP) are capitalised asintangible assets and stated at cost lessaccumulated amortisation and any identifiedimpairment loss. Intangible assets are amortisedusing the straight line method over a periodof three years.

Depreciation/amortisation on additions tofixed assets is charged from the month inwhich an asset is acquired or capitalised whileno depreciation/amortisation is charged forthe month in which the asset is disposed off.Impairment loss or its reversal, if any, is alsocharged to income. Where an impairment lossis recognised, the depreciation charge isadjusted in the future periods to allocate theasset's revised carrying amount over itsestimated useful life.

The net exchange difference relating to anasset, at the end of each year, is amortised inequal instalments over its remaining usefullife.

Major repairs and improvements arecapitalised. Minor repairs and renewals arecharged to income. The gain or loss on disposalor retirement of an asset represented by thedifference between the sale proceeds and thecarrying amount of the asset is recognised asan income or expense.

2.4.2 Capital work in progress

Capital work in progress is stated at cost lessany identified impairment loss.

2.5 Investment property

Property not held for own use or for sale inthe ordinary course of business is classifiedas investment property. The investmentproperty of the company comprises buildingsand is valued using the cost method i.e., atcost less any accumulated depreciation andany identified impairment loss.

Depreciation on buildings is charged to profiton the straight line method so as to write offthe historical cost of a building over itsestimated useful life at the rates ranging from

3.33% to 4% per annum. Depreciation onadditions to investment property is chargedfrom the month in which a property is acquiredor capitalised while no depreciation is chargedfor the month in which the property isdisposed off. Impairment loss or its reversal,if any, is also charged to income. Where animpairment loss is recognised, the depreciationcharge is adjusted in the future periods toallocate the building's revised carrying amountover its estimated useful life.


2.6 Leases

(1) The company is the lessee:

Finance leases

Leases where the company has substantiallyall the risks and rewards of ownership areclassified as finance leases. Assets subject tofinance lease are stated at the lower of presentvalue of minimum lease payments under thelease agreements and the fair value of theassets.

The related rental obligations, net of financecharges, are included in liabilities against assetssubject to finance lease as referred to innote 7. The liabilities are classified as currentand long-term depending upon the timing ofthe payment.

Each lease payment is allocated between theliability and finance charges so as to achievea constant rate on the balance outstanding.The interest element of the rental is chargedto profit over the lease term.

Assets acquired under a finance lease areamortised over the useful life of the asset ona straight line method at the rates given innote 2.4.1. Amortisation of leased assets ischarged to profit.

Amortisation on additions to leased assets ischarged from the month in which an asset is

046

acquired while no amortisation is charged forthe month in which the asset is disposed off.

Operating leases Leases where a significant portion of the risksand rewards of ownership are retained by thelessor are classified as operating leases.Payments made under operating leases (netof any incentives received from the lessor) arecharged to profit on a straight line basis overthe lease term.

(2) The company is the lessor:

Operating leases

Assets leased out under operating leases areincluded in investment property as referredto in note 14. They are depreciated over theirexpected useful lives on a basis consistentwith similar owned operating fixed assets.Rental income (net of any incentives given tolessees) is recognised on a straight line basisover the lease term.

2.7 Long-term investments

Investments in equity instruments ofsubsidiaries and associated companies

Investments are initially measured at cost.Cost in relation to investments made in foreigncurrency is determined by translating theconsideration paid in foreign currency intorupees at exchange rates prevailing on the dateof transactions.

Other investments

The other investments made by the companyare classified for the purpose of measurmentinto the following categories.

Held to maturity

Investments with fixed maturity that themanagement has the intent and ability to holdto maturity are classified as held to maturityand are initially measured at cost and atsubsequent reporting dates measured atamortised cost using the effective yield method.

Available for sale

Investments classified as available for sale areinitially measured at cost, being the fair valueof consideration given. At subsequentreporting dates, these investments arere-measured at fair value (quoted market price),unless fair value cannot be reliably measured.The investments for which a quoted marketprice is not available, are measured at cost asit is not possible to apply any other valuationmethodology. Realised and unrealized gainsand losses arising from changes in fair valueare included in the net profit or loss for theperiod in which they arise.

All purchases and sales of investments arerecognised on the trade date which is the datethat the company commits to purchase or sellthe investment. Cost of purchase includestransaction cost.

At subsequent reporting dates, the companyreviews the carrying amounts of theinvestments to assess whether there is anyindication that such investments have sufferedan impairment loss. If any such indicationexists, the recoverable amount is estimated inorder to determine the extent of theimpairment loss, if any. Impairment losses arerecognised as expense. Where an impairmentloss subsequently reverses, the carrying amountof the investment is increased to the revisedrecoverable amount but limited to the extentof initial cost of the investment. A reversal ofthe impairment loss is recognised in income.

2.8 Employee retirement benefits

The main features of the schemes operatedby the company for its employees are asfollows:

(a) All the executive staff participates in anapproved funded defined benefit pensionplan. In addition, there is an approvedfunded defined benefit gratuity plan for allemployees. Monthly contributions are madeto these funds on the basis of actuarialrecommendation at the rate of 20 percentper annum of basic salaries for pensionand 4.33 percent per annum of basic salariesfor gratuity. The latest actuarial valuation

047

for the pension and gratuity schemes wascarried out as at December 31, 2003. Theactual returns on plan assets during the yearwere Rs. 41.424 million and Rs. 21.615 millionfor the pension and gratuity funds respectively.The actual returns on plan assets representthe difference between the fair value of planassets at beginning of the year and end of theyear after adjustments for contributions madeby the company as reduced by benefits paidduring the year.

The future contribution rates of these plansinclude allowances for deficit and surplus.Projected unit credit method, using thefollowing significant assumptions, is used forvaluation of these schemes:

Discount rate 8 percent per annum.

Expected rate of increase in salary level5.94 percent per annum.

Expected rate of return 8 percent perannum.

The company's policy with regard to actuarialgains/losses is to follow minimumrecommended approach under IAS 19 (revised1998).

(b) There is an approved contributoryprovident fund for all employees. Equalmonthly contributions are made by thecompany and the employees to thefund.

(c) Accumulating compensated absences

Provisions are made annually to coverthe obligation for accumulatingcompensated absences and are chargedto profit.

Retirement benefits are payable to staffon completion of prescribed qualifyingperiod of service under these schemes.

2.9 Stores and spares

Usable stores and spares are valued principallyat moving average cost, while items consideredobsolete are carried at nil value. Items in transitare valued at cost comprising invoice valueplus other charges paid thereon.

2.10 Stock-in-trade

Stock of raw materials, except for those in

transit, work-in-process and finished goodsare valued principally at the lower of weightedaverage cost and net realisable value. Cost ofwork-in-process and finished goods comprisescost of direct materials, labour and appropriatemanufacturing overheads.

Materials in transit are stated at cost comprisinginvoice value plus other charges paid thereon.

Net realisable value signifies the estimatedselling price in the ordinary course of businessless costs necessary to be incurred in order tomake a sale.

2.11 Financial instruments

Financial assets and financial liabilities arerecognised when the Company becomes aparty to the contractual provisions of theinstrument. The particular measurementmethods adopted are disclosed in the individualpolicy statements associated with each item.

2.12 Trade debts

Trade debts are carried at original invoiceamount less an estimate made for doubtfuldebts based on a review of all outstandingamounts at the year end. Bad debts are writtenoff when identified.

2.13 Related party transactions

All transactions with related parties are atarm’s length prices determined in accordancewith the pricing method as approved by theBoard of Directors.

2.14 Cash and cash equivalents

Cash and cash equivalents are carried in thebalance sheet at cost. For the purpose of cashflow statement, cash and cash equivalentscomprise cash in hand, demand deposits, othershort-term highly liquid investments that arereadily convertible to known amounts of cashand which are subject to an insignificant riskof change in value and finances under markup arrangements. In the balance sheet, financesunder mark up arrangements are included incurrent liabilities.

2.15 Borrowings

Loans and borrowings are recorded at theproceeds received. In subsequent periods,

048

borrowings are stated at amortised cost usingthe effective yield method. Financial chargesare accounted for on an accrual basis and areincluded in creditors, accrued and otherliabilities to the extent of the amount remainingunpaid.

2.16 Creditors, accrued and other liabilities

Liabilities for trade and other amounts payableare carried at cost which is the fair value ofthe consideration to be paid in future forgoods and services.

2.17 Provisions

Provisions are recognised when the companyhas a present obligation as a result of pastevent which it is probable will result in anoutflow of economic benefits and a reliableestimate can be made of the amount of theobligation.

2.18 Derivative financial instruments

These are initially recorded at cost and areremeasured to fair value at subsequentreporting dates.

2.19 Revenue recognition

Revenue is recognised on despatch of goodsor on the performance of services except formanagement fee, which is recognised onreceipt.

Return on deposits is accrued on a time

proportion basis by reference to the principaloutstanding and the applicable rate of return.

Dividend income on equity investments isrecognised as income when the right of receiptis established.

2.20 Foreign currencies

All monetary assets and liabilities in foreigncurrencies are translated into rupees atexchange rates prevailing at the balance sheetdate. Transactions in foreign currencies aretranslated into rupees at the spot rate. Allnon-monetary items are translated into rupeesat exchange rates prevailing on the date oftransaction or on the date when fair valuesare determined.

Exchange differences on loans utilised forthe acquisition of plant and machinery arecapitalised upto the date of commissioningof the assets.

All other exchange differences are includedin profit currently.

2.21 Borrowing costs

Mark up, interest and other charges onredeemable capital and other long-termborrowings are capitalised upto the date ofcommissioning of the related plant andmachinery, acquired out of the proceeds ofsuch redeemable capital and long-termborrowings. All other mark up, interest andother charges are charged to profit.

049

3. Issued, subscribed and paid up capital

9,335,349 (2002: 9,228,349) ordinary shares of the company are held by International General InsuranceCompany of Pakistan Limited, an associated concern as at December 31, 2003.

Ordinary shares of Rs. 10 eachfully paid in cash

Ordinary shares of Rs. 10 eachissued as fully paid for considerationother than cash

Ordinary shares of Rs. 10 eachissued as fully paid bonus shares

11,260,868

148,780

36,127,432

47,537,080

11,260,868

148,780

36,127,432

47,537,080

112,609

1,488

361,274

475,371

112,609

1,488

361,274

475,371

(Rupees in thousand)20022003

(Number of shares)20022003

Security

This finance is secured by an equitable mortgage of immovable properties, hypothecation of all plantand machinery and a floating charge on all current assets subject to hypothecation of stores, spares,stock-in-trade and trade debts in favour of the Company's bankers referred to in note 10.

All charges in favour of the lenders of this finance rank pari passu with each other.

Terms of repayment

It is a long-term finance arranged from a consortium of banks for a maximum of Rs. 400 millionunder mark up arrangements. Mark up is computed at the rate of Re. 0.0555 per Rs. 1,000 per diemover and above the six months Treasury Bill rate. The finance is repayable in three equal half yearlyinstalments. Mark up is payable half yearly.

6. Non-participatory redeemable capital - unsecured

These represent Term Finance Certificates (TFCs).

The TFCs have been issued as fully paid scrips of Rs. 5,000 and Rs. 100,000 denominations or exactmultiples thereof. These are listed on Lahore Stock Exchange and their market value is Rs. 926.500million as at December 31, 2003.

4. Reserves

Movement in and composition of reserves is as follows:

CapitalShare premium - note 4.1 203,589 203,589

RevenueGeneral reserve

At the beginning of the year 2,140,036 1,817,036Transfer from profit and loss account 409,000 323,000

2,549,036 2,140,036

2,752,625 2,343,625

4.1 This reserve can be utilised by the Company only for the purposes specified in section 83(2) of theCompanies Ordinance, 1984.

5. Non participatory redeemable capital - secured

These are composed of:

Long-term running finance under mark up arrangements 50,000 150,000Less: Current portion shown under current liabilities 50,000 100,000

- 50,000



050

Terms of repayment

Call option

The company may redeem the TFCs by wayof exercise of the Call option by giving writtennotice and/or public notice to the TFCholders and the trustee at least sixty days priorto the option date(s). The company will havethe option to call the TFCs from the TFCholders for redemption on January 15, 2005and at the end of every four years thereafter.

The Call option may only be exercised by thecompany with respect to all of the outstandingTFCs.

Put option

The TFC holders may exercise their Putoption for redemption of TFCs by givingwritten notice to the company at least sixtydays prior to the option date(s). TFC holderswill have the option to put the TFCs to thecompany for redemption on January 15, 2005and at the end of every four years thereafter.

The Put option may be exercised by any orall of the TFC holders for any number ofTFCs held by them. However, any particularTFC cannot be redeemed partially byexercising the put option.

Rate of return

The return on TFCs is payable quarterly and

is calculated at the State Bank of Pakistan'sthree-day repo rate plus 1.25 % per annumsubject to a minimum of 13.50 % per annumand a maximum of 17.00 % per annum.

Trustee

In order to protect the interests of the TFCholders, an investment bank has beenappointed as Trustee under a trust deed datedJune 26, 2001. The Trustee is paid a fee atthe rate 0.065% per annum of the outstandingbalance of the TFCs.

In case the company defaults on any of itsobligations, the trustee may enforce thecompany's obligations in accordance with theterms of the trust deed. The proceeds of anysuch enforcements shall be distributed to theTFC holders at the time on a pari passu basisin proportion to the amounts owed to thempursuant to the TFCs.

Redemption fund

In accordance with the terms of issue, toensure timely repayment of the principalamount to small individual investors holdingTFCs upto Rs. 200,000 on January 15, 2005and at the end of every four years thereafter,the company has established a redemptionfund consisting of TFCs of First InternationalInvestment Bank Limited as referred to innote 17.1.

The present value of minimum lease payments have been discounted at an implicit interest rateranging from 7.25% to 11.7% to arrive at their present value. The lessee has the option to purchasethe assets after expiry of the lease term.

Taxes, repairs, replacements and insurance costs are to be borne by the company.

7. Liabilities against assets subject to finance lease

Present value of minimum lease payments 37,688 70,400Less: Current portion shown under current liabilities 35,986 35,200

1,702 35,200


051

The amount of future payments of the lease and the period in which these payments will becomedue are as follows:

8. Other payables - secured

Other payables 15,108 15,108Less: Current portion shown under current liabilities 10,238 -

4,870 15,108

These represent 50% of the import duties deferred under the Deferment of Import Duties Rules,1991. The balance is repayable by the year 2005. Surcharge is payable half yearly at a rate of 14% perannum. The liability is secured by bank guarantees included in note 10.2.

9. Deferred liabilities


Deferred taxation - note 9.1 502,000 420,000Accumulating compensated absences - note 9.2 64,681 61,048

566,681 481,0489.1 Deferred taxation

The liability for deferred taxation comprises timing differences relating to:

Accelerated tax depreciation 540,868 457,597Provision for accumulating compensated absences (22,638) (21,367)Impairment loss in value of investments (16,230) (16,230)

502,000 420,000



052

2003200420052006

Years

-39,811

920874

41,605

-3,825

7616

3,917

-35,986

844858

37,688

35,20035,200

--

70,400

20022003( R u p e e s i n t h o u s a n d )

Minimumlease

payment

Futurefinancecharge

Present value of leaseliability

10.1 Running finances - secured

Short-term running finances available froma consortium of commercial banks undermark up arrangements amount toRs. 2,449.538 million (2002: Rs. 1,600.000million). The rates of mark up range fromRe. 0.0616 to Re. 0.2603 per Rs. 1,000 perdiem or part thereof on the balancesoutstanding. In the event, the company failsto pay the balances on the expiry of thequarter, year or earlier demand, mark up is tobe computed at the rates ranging from Re.0.0740 to Re. 0.3123 per Rs. 1,000 per diemor part thereof on the balances unpaid. Theaggregate running finances are secured byhypothecation of stores, spares, stock-in-tradeand trade debts.

10.2 Short-term finances - secured

Term finances available from a consortiumof commercial banks under mark up

arrangements amount to Rs. 350.462 million(2002: Rs. 595.000 million). The rates of markup range from Re. 0.0603 to Re. 0.0658 perRs. 1,000 per diem or part thereof. Theaggregate term finances are secured byhypothecation of stores, stock-in-trade andtrade debts.

Of the aggregate facility of Rs. 1,153.84 million(2002: Rs. 871.6 million) for opening lettersof credit and Rs. 349 million (2002: Rs. 379million) for guarantees, the amount utilisedat December 31, 2003 was Rs. 162.150 million(2002: Rs. 180.798 million) and Rs. 166.443million (2002: Rs. 150.557 million) respectively.Of the facility for guarantees, Rs. 322.50million (2002: Rs. 322.50 million) is securedby a second hypothecation charge over stores,spares, stock-in-trade and trade debts.

9.2 Accumulating compensated absences

Opening balance 61,048 63,265Provision for the year 8,768 4,407

69,816 67,672Less: Payments made during the year 5,135 6,624

Closing balance 64,681 61,048

10. Finances under mark up arrangements-secured

Running finances - note 10.1 148,653 141,033Short-term finances - note 10.2 350,462 595,000

499,115 736,033


053

11. Creditors, accrued and other liabilities

Trade creditors - note 11.1 61,744 47,784Accrued liabilities 284,473 271,662Sales tax payable - 13,069Customers' balances 30,720 20,093Deposits - interest free repayable on demand 3,787 3,242Interest accrued on other payables - secured 1,611 2,239Mark up accrued on non participatory redeemable capital

- Secured 940 5,548- Un-secured 23,913 23,909

Mark up accrued on finances under mark uparrangements - secured 2,866 9,244

Workers' profit participation fund - note11.2 54,768 42,993Workers' welfare fund 14,107 33,879Unclaimed dividends 4,861 3,871TFCs payable - note 24.2 1,391 1,322Others 17,788 17,063

502,969 495,918

11.1 Trade creditors include amount due to associated companies Rs. 43.627 million (2002: Rs. 22.477 million).

11.2 Workers' profit participation fund

Opening balance 42,993 27,834Provision for the year - note 29 54,768 42,993



12. Contingencies and commitments

12.1 Contingencies

(i) Guarantees to bank for repayment ofloans by employees Rs. 0.046 million(2002: Rs. 0.125 million).

(ii) Claims against the company notacknowledged as debts Rs. 9.580 million(2002: Rs. 7.835 million).

(iii) Against a sales tax refund aggregatingRs. 12.827 million determined by the

Sales Tax Officer (STO) on the basisof the orders of the Appellate AssistantCommissioner (AAC) for theassessment years 1977-78 through 1980-81 and recognised in the accounts in1985, the STO filed an appeal in 1986with the Income Tax Appellate Tribunal(ITAT) against the Orders of the AACfor these years. The orders of the AACwere based on a decision already givenby the ITAT on the company's appealfor application of a lower rate of salestax on self consumed material for earlieryears. Pending the outcome of the



054

appeal filed by STO no adjustmenthas been made for the refundsrecognised in the accounts as themanagement is of the view that theappeal of the STO will not be upheldby the ITAT.

(iv) For the assessment years 1999-2000and 2000-2001, Inspecting AdditionalCommissioner (IAC) has raised taxdemand of Rs. 110.525 million and Rs.132.025 million respectively undersection 12(9A) of the Income TaxOrdinance, 1979 on account of excess

revenue reserves. The Income TaxAppellate Tribunal (ITAT) has set asidethe orders of the IAC and remandedthe issue back. The departmentsreference application against the ordersof ITAT has been rejected by the ITATand the department has now filed anappeal directly to the High Court againstthe decision of the ITAT. No provisionhas been made in these accounts forthis demand since in the management'sview, there are meritorious groundsthat the ultimate decision would be inthe Company's favour.

12.2 Commitments in respect of

(i) Contracts for capital expenditure Rs. 20.700 million (2002: Rs. 84.989 million).

(ii) Letters of credit other than for capital expenditure Rs. 225.709 million (2002: Rs. 260.950 million).

13. Operating fixed assets

13.1 Tangible

Additions to plant and machinery include mark up of Rs. 6.052 million (2002: Rs. 36.176 million).

Fixed assets include assets amounting to Rs. 12.476 million (2002: Rs. 19.615 million) of the company which are not in operation.

The cost of fully depreciated assets which are still in use as at Decemeber 31, 2003 is Rs. 1,251.478 million (2002: Rs. 1,149.038 million).

Freehold land 103,255 - - 908 102,954 - - - - 102,954(1,209)

Buildings on freehold land 195,945 - - 14,870 199,557 43,224 - 8,508 45,766 153,791(11,258) (5,966)

Buildings on leasehold land 128,388 - - - 128,388 24,580 - 4,666 29,246 99,142

Plant and machinery 5,452,404 - - 359,596 5,760,429 3,178,402 - 342,050 3,469,285 2,291,144(51,571) (51,167)

Other Equipment 175,800 - - 53,902 225,798 122,313 - 27,476 146,283 79,515(3,904) (3,506)

Furniture and fixtures 5,365 - - 365 5,374 2,833 - 691 3,209 2,165(356) (315)

Vehicles 135,384 - - 19,134 140,420 78,828 - 20,564 87,124 53,296(14,098) (12,268)

2003 6,196,541 - - 448,775 6,562,920 3,450,180 - 403,955 3,780,913 2,782,007(82,396) (73,222)

2002 5,482,288 (882) (19,330) 746,875 6,196,541 3,091,991 (7,607) 374,660 3,450,180 2,746,361(12,410) (8,864)

055


Cost toDecember31, 2002

Transfers toInvestmentProperty

Additions/(deletions)


AccumulateddepreciationDecember31, 2002


Depreciationcharge/

(deletions)for the year

Accumulateddepreciation/amortisation

December31, 2003

Book valueas at

December31, 2003Adjustments

13.2 Intangible

Computer software and

ERP system 115,437 438 115,875 49,509 38,295 87,804 28,071

2003 115,437 438 115,875 49,509 38,295 87,804 28,071

2002 115,437 - 115,437 11,030 38,479 49,509 65,928


AccumulatedamortisationDecember31, 2002Additions


Amortisationcharge

for the year

Book valueas at

December31, 2003

Accumulatedamortisation

December31, 2003

13.3 The depreciation/amortisation charge for the year has been allocated as follows:

Cost of goods sold - note 25 371,161 2,879 374,040 344,439

Selling and distribution expenses - note 26 6,414 - 6,414 6,163

Administration and general expenses - note 26 26,380 35,416 61,796 62,537

403,955 38,295 442,250 413,139

Depreci-ation

Total2003 2002

Amortis-ation



056

Motor cars Executives

Mr. Mansoor Hassan Bhatti 257 257 - 103 Company policyIqbal Bhatti 485 210 275 355 -do-Sahil Zaheer 319 144 175 189 -do-Syed Kamal Ali 761 761 - 224 -do-Meraj Din 384 346 38 177 -do-Khawaja Rizwan Hassan 256 256 - 78 -do-Sohail Ahmad 300 215 85 138 -do-Osman Farooq 349 58 291 297 -do-Bashir Ahmed Bhatti 310 310 - 104 -do-Lt. Col. (Retd.) Sajid Ikram 595 594 1 357 -do-Abdul Qudoos 440 330 110 254 -do-Muhammad Ashraf 441 441 - 221 -do-Muhammad Murid Hussain 315 315 - 124 -do-Rana Javaid Bashir 323 307 16 129 -do-Hafiz Manzoor Hussain 253 253 - 76 -do-Sahibzada Rashid Hameed 270 270 - 90 -do-Aziz Mahmood 260 260 - 81 -do-Muhammad Ajmal 625 604 21 400 -do-Ali Ahmed 247 239 8 91 -do-Muhammad Asif Ameer 319 144 175 209 -do-Akram Naeem 280 280 - 97 -do-Mohammad Majeed Ghani 297 297 - 110 -do-Saeed Ahmad 400 400 - 190 -do-Pervaiz Raza Mirza 271 271 - 114 -do-Ijaz Ahmad Khan 485 485 - 279 -do-Habib Ahmed 363 109 254 303 -do-Rafi Iqbal Ahmed 848 848 - 80 -do-Tariq Akram Khan Niazi 251 251 - 114 -do-Sheikh Saif-ur-Rehman 354 354 - 175 -do-Mohammad Yasin 411 411 - 220 -do-Muhammad Ashraf Anjum 289 289 - 123 -do-

Dr. S Mughis Asghar 846 846 - 160 -do-Ms. Fatima Saleem 439 256 183 292 -do-

OutsidersMr. Fazal Ahmad 505 505 - 410 Auction

Pervaiz 246 246 - 246 Negotiation International General Insurance

Company of Pakistan Limited 304 106 198 280 Insurance claimsLand Miscellaneous 1,209 - 1,209 4,435 NegotiationBuilding -do- 11,258 5,966 5,292 12,368 NegotiationPlant andmachinery -do- 1,633 1,257 376 - Scrap

-do- 101 83 18 41 NegotiationOther equipment -do- 100 27 73 - Scrap

-do- 1,442 1,135 307 430 NegotiationFurnitureand fixture -do- 155 125 30 - ScrapItems below book value of Rs. 5,000 52,400 52,361 39 4,787

82,396 73,222 9,174 28,951

13.4 Disposal of operating fixed assets

Particularsof the assets

Accumulateddepreciation Book value

SaleproceedsCost

Mode ofdisposal Sold to


057

14. Investment property

Buildings on leasehold land 24,029 - - 24,029 8,319 - 868 9,187 14,842

2003 24,029 - - 24,029 8,319 - 868 9,187 14,842

2002 - 19,330 4,699 24,029 - 7,607 712 8,319 15,710

Depreciation charge for the year has been allocated to administration and general expenses.Fair value of the investment property transferred from fixed assets, based on the valuation carried out by an independent valuer, as atDecember 31, 2003 is Rs. 21.760 million (2002: Rs. 22.377 million).


Transfersfrom fixed

assets Additions



Transfersfrom fixed

assets

Depreciationcharge

for the year


Book valueas at

December31, 2003


15. Assets subject to finance lease

Plant and machinery 176,000 - 176,000 38,500 11,000 49,500 126,500Vehicles - 2,766 2,766 - 184 184 2,582

2003 176,000 2,766 178,766 38,500 11,184 49,684 129,082

2002 176,000 - 176,000 27,500 11,000 38,500 137,500

Amortisation charge for the year has been allocated to cost of goods sold.


16. Capital work-in-progress

Plant and machinery 283,733 190,162Civil works and buildings 61,014 6,740

344,747 196,902

Cost of plant and machinery includes mark up of Rs. Nil (2002: Rs. 2.150 million).

17. Long-term investments

In subsidiaries - Unquoted

Coates Lorilleux Pakistan Limited3,377,248 (2002: 2,814,375) fully paid ordinaryshares of Rs. 10 eachEquity held 54.98% (2002: 54.98%)Value of investment based on the net assets shown inthe audited accounts as at December 31, 2003Rs. 85.346 million (2002: Rs. 71.858 million) 15,010 15,010

Packages Lanka (Private) Limited64,779,884 (2002: 57,991,284) shares of SL Rupees 10 eachEquity held 79.07% (2002: 77.18%)Value of investment based on the net assets shownin audited accounts as at December 31, 2003Rs. 117.066 million (2002: Rs. 108.174 million) 442,938 402,457Less: Impairment loss (46,371) (46,371)

396,567 356,086

411,577 371,096

Cost toDecember31, 2002 Additions


AccumulatedamortisationDecember31, 2002

Amortisationcharge

for the year


December31, 2003

Book valueas at

December31, 2003

Carried forward



058

Brought forward 411,577 371,096

In associated companies

Quoted

Nestle Milkpak Limited3,649,248 (2002: 3,649,248) fully paidordinary shares of Rs. 10 eachEquity held 8.06% (2002: 8.06%)Market value - Rs. 1,372.117 million(2002: Rs. 797.361 million) 24,555 24,555

International General Insurance Company of Pakistan Limited1,303,470 (2002: 1,133,453) fully paidordinary shares of Rs. 10 eachEquity held 10.61 % (2002: 10.61%)Market value - Rs. 294.584 million(2002: Rs. 105.808 million) 22,519 22,519

Tri-Pack Films Limited10,000,000 (2002: 10,000,000) fully paidordinary shares of Rs. 10 eachEquity held 33.33% (2002: 33.33%)Market value - Rs. 850 million (2002: Rs. 530 million) 100,000 100,000

First International Investment Bank Limited2,644,995 (2002: 2,299,996) fully paidordinary shares of Rs. 10 eachEquity held 9.99 % (2002: 9.99%)Market value - Rs. 34.385 million (2002: Rs. 27.020 million) 25,000 25,000

First International Investment Bank Limited6 (2002: 6) term finance certificatesof Rs. 1 million eachMarket value - Rs. 7.50 million (2002: Rs. 8.10 million)

-note 17.1 7,985 7,033

180,059 179,107

Carried forward 591,636 550,203


059

Brought forward 591,636 550,203

Unquoted

Tetra Pak Pakistan Limited26,400,000 (2002: 22,000,000) fully paidordinary shares of Rs. 10 eachEquity held 44% (2002: 44%)Value of investment based on the net assetsshown in the audited accounts as atDecember 31, 2002 Rs. 344.835 million(2001: Rs. 333.773 million) 15,400 15,400

Coca-Cola Beverages Pakistan Limited500,000 (2002: 500,000) fully paidordinary shares of Rs. 10 eachEquity held 0.14 % (2002: 0.14%)Value of investment based on the net assetsshown in the audited accounts as atDecember 31, 2002 Rs. 1.617 million(2001: Rs. 1.880 million) 5,000 5,000

20,400 20,400

Others

Quoted

The Resource Group (TRG) Pakistan Limited2,000,000 (2002: Nil) fully paidordinary shares of Rs. 10 eachEquity held 2.78 % (2002: Nil)Market value - Rs. 31.400 million (2002: Nil) -note 17.2 31,400 -

Unquoted

Pakistan Tourism Development Corporation Limited2,500 (2002: 2,500) fully paidordinary shares of Rs. 10 eachChief Executive : Maj. (Retd.) Malik Habib Khan -note 17.2 25 25

Orient Match Company Limited1,900 (2002: 1,900) fully paidordinary shares of Rs. 100 eachChief Executive : Khawaja Muhammad Akbar -note 17.2 - -

25 25

643,461 570,628


060

17.1 Investment in TFCs has been made in accordance with the terms of issue of the term financecertificates of Rs. 850 million as referred to in note 6. The rate of profit on these TFCs is 16% perannum payable at maturity. For the purpose of measurement these have been classified as held tomaturity investments.

17.2 For the purpose of measurement these have been classified as available for sale investments.

18. Long-term loans, deposits and other receivables

Loans to employees - considered good - note 18.1 1,005 926Security deposits 2,976 2,753

3,981 3,679

18.1 These represent interest free loans to employees for purchase of cycles and motor cycles and arerepayable in monthly instalments over a period of 50 to 138 months.

Loans to employees aggregating Rs. 0.159 million (2002: Rs. 0.065 million) are secured by jointregistration of motor cycles in the name of employees and the company. The remaining loans areunsecured.

Long-term loans to employees outstanding for more than 3 years amount to Rs. 0.618 million (2002:Rs. 0.610 million).

19. Retirement and other benefits

Pension fund - note 19.1 (17,219) (17,226)Gratuity fund - note 19.2 54,555 43,958

37,336 26,732

19.1 Pension fund

The amounts recognised in the balance sheet are as follows:

Fair value of plan assets 347,977 299,969Present value of defined benefit obligation (386,314) (358,145)Non vested (past service) cost to be recognised in later periods 18,130 21,151Unrecognised actuarial losses 2,988 19,799

(Liability) as at December 31 (17,219) (17,226)

Net (liability) as at January 01 (17,226) (15,027)Charge to profit and loss account (17,653) (11,137)Contribution by the company 17,660 8,938


Fair value of plan assets include ordinary shares and Term Finance Cerificates (TFCs) of the company,whose fair value as at December 31, 2003 is Rs. 17.546 million (2002: Rs 9.180 million) and Rs 3.270million (2002: Rs. Nil) respectively.



061

19.2 Gratuity fund


Fair value of plan assets 248,973 238,249Present value of defined benefit obligation (151,673) (141,317)Unrecognised actuarial (gains) (42,745) (52,974)

Assets as at December 31 54,555 43,958

Net assets as at January 01 43,958 31,646Credit to profit and loss account 4,842 1,938Contribution by the company 5,755 10,374


Fair value of plan assets include ordinary shares of the company, whose fair value as at December31, 2003 is Rs. 1.318 million (2002: Rs. 2.620 million).

20. Stores and spares

Stores [including in transit Rs. 4.050 million(2002: Rs. 5.420 million)] 116,852 128,251

Spares [including in transit Rs. 16.742 million(2002: Rs. 8.379 million)] 202,028 171,387

318,880 299,638

Stores and spares include items which may result in fixed capital expenditure but are not distinguishable.

21. Stock-in-trade

Raw materials [including in transit Rs. 102.400 million(2002: Rs. 89.716 million)] 504,312 507,508

Work-in-process 65,621 57,258Finished goods 274,187 311,441

844,120 876,207

Finished goods of Rs. 18.835 million (2002: Rs. 47.420 million) are being carried at net realisable value.

22. Trade debts

Considered goodAssociated undertakings - note 22.1 106,138 72,456Others 471,410 470,762

577,548 543,218

Trade debts include secured debts of Rs. 1.020 million (2002: Rs. 3.059 million).





062

22.1 Due from associated undertakings

Treet Corporation Limited 4,014 472Nestle Milkpak Limited 44,497 30,970Tetrapak Pakistan Limited 48,381 36,550Zulfiqar Industries Limited 5,847 2,528Tri-Pack Films Limited 2,814 1,578Coca-Cola Beverages Pakistan Limited 278 94Coates Lorilleux Pakistan Limited 307 264

106,138 72,456

These are in the normal course of business and are interest free. The maximum aggregate amountoutstanding due from associated undertakings at the end of any month during the year wasRs. 110.900 million (2002: Rs. 105.066 million).

23. Loans, advances, deposits, prepayments and other receivables

Loans to employees - considered good 204 161Advances - considered good

To employees - note 23.1 7,045 8,418To suppliers 14,024 14,088

21,069 22,506Advances to suppliers - considered doubtful 74 74Due from associated undertakings - note 23.2 21,683 8,809Trade deposits 9,345 3,066Prepayments 8,242 8,463Balances with statutory authorities

Excise duty 241 2,042Customs duty 939 705

1,180 2,747Profit receivable on bank deposits 12 32Claims recoverable from Government

Sales tax 14,734 3,274Income tax recoverable - note 23.3 36,013 36,013Income tax refundable 213,391 293,510

264,138 332,797Other receivables 6,170 584

332,117 379,239Less: Provision against doubtful advances 74 74

332,043 379,165

23.1 Included in advances to employees are amounts due from Chief Executive, Directors and Executivesof Rs. 0.030 million, Rs. 0.301 million and Rs. 3.171 million respectively (2002: Chief ExecutiveRs. 0.081 million, Directors Rs. 0.310 million and Executives Rs. 4.826 million).

The maximum aggregate amount of advances due from Chief Executive, Directors and Executivesat the end of any month during the year were Rs. 0.065 million, Rs. 2.034 million and Rs. 6.988million respectively (2002: Chief Executive Rs. 0.684 million, Directors Rs. 1.098 million and ExecutivesRs. 13.318 million).



063


Tetrapak Pakistan Limited 9,166 4,711Tri-Pack Films Limited 78 8Coates Lorilleux Pakistan Limited 1,790 1,419International General Insurance Company of Pakistan Limited 415 2,518First International Invesment Bank Limited 10,000 -Packages Lanka (Private) Limited 234 153

21,683 8,809

These relate to normal business of the company and are interest free. The maximum aggregate amountof advances to associated companies at the end of any month during the year was Rs. 21.683 million(2002: Rs. 20.940 million).

23.3 In 1987, the Income Tax Officer (ITO) reopened the company’s assessments for the accountingyears ended December 31, 1983 and 1984 disallowing primarily tax credit given to the company undersection 107 of the Income Tax Ordinance, 1979. The tax credit amounting to Rs. 36.013 millionon its capital expenditure for these years was refused on the grounds that such expenditure representedan extension of the company’s undertaking which did not qualify for tax credit under this sectionin view of the company’s location. The assessments for these years were revised by the ITO on thesegrounds and taxes reassessed were adjusted against certain sales tax refunds and the tax creditspreviously determined by the ITO and set off against the assessments framed for these years.

The company had filed an appeal against the revised orders of the ITO before the Commissionerof Income Tax (Appeals) [CIT(A)], Karachi. The Commissioner has in his order issued in 1988 heldthe assessments reframed by the ITO for the years 1983 and 1984 presently to be void and of nolegal effect. The Income Tax Officer has filed an appeal against the Commissioner’s order with theIncome Tax Appellate Tribunal (ITAT). The ITAT has in its order issued in 1996 maintained theorder of CIT (A). The assessing officer after the receipt of the appellate order passed by CIT (A),has issued notices under section 65 of the Income Tax Ordinance, 1979 and the company has fileda writ petition against the aforesaid notices with the High Court of Sindh, the outcome of which isstill pending.

The amount recoverable Rs. 36.013 million represents the additional taxes paid as a result of thedisallowance of the tax credits on reframing of the assessments.

24. Cash and bank balances

At banksOn savings accounts [including USD 43,708

(2002: USD 224)] - note 24.1 6,328 7,859On current accounts - note 24.2 84,597 72,491

90,925 80,350In hand 7,241 8,459

98,166 88,809

24.1 The balances in savings accounts bear mark up which ranges from 0.90% to 2% per annum.

24.2 Included in these are total restricted funds of Rs. 1.391 million (2002: Rs. 1.322 million) held aspayable to TFC holders as referred to in note 11.



064

25. Cost of goods sold

Opening work-in-process 57,258 50,580Materials consumed 2,263,462 1,925,656Salaries, wages and amenities - note 25.1 386,121 350,429Fuel and power 606,718 524,616Production supplies 162,287 158,182Excise duty and sales tax 42,726 76,752Rent, rates and taxes 5,519 1,738Insurance 39,007 36,296Repairs and maintenance 225,381 267,275Packing expenses 27,912 15,161Depreciation/amortisation on fixed assets 374,040 344,439Amortisation on leased assets 11,184 11,000Technical fee and royalty 14,204 11,991Other expenses 55,024 37,469

4,270,843 3,811,584Less: Closing work-in-process 65,621 57,258Cost of goods produced 4,205,222 3,754,326Opening stock of finished goods 311,441 229,229

4,516,663 3,983,555Less: Closing stock of finished goods 274,187 311,441

4,242,476 3,672,114

Cost of goods produced includes Rs. 531 million (2002: Rs. 451.903 million) for stores and spares consumed,Rs. 7.842 million (2002: Rs. 3.290 million) and Rs. 0.669 million (2002: Rs. 1.822 million) for raw materialand stores and spares written off respectively.

25.1 Salaries, wages and amenities

Salaries, wages and amenities include following inrespect of retirement benefits:

PensionCurrent service cost 7,086 4,954Interest cost for the year 15,257 15,958Expected return on plan assets (13,188) (14,498)Contribution made by the employees (2,161) (1,661)Recognition of past service cost 1,643 1,588Recognition of loss/(gain) 961 (483)

9,598 5,858Gratuity

Current service cost 4,998 6,082Interest cost for the year 7,412 13,602Expected return on plan assets (12,965) (19,940)Recognition of (gain) (2,814) (1,507)

(3,369) (1,763)

In addition to above, salaries, wages and amenities include Rs. 9.760 million (2002: Rs. 9.222 million)and Rs. 8.483 million (2002: Rs. (0.173)million) in respect of provident fund contribution by thecompany and accumulating compensated absences respectively.



065

26. Selling, administration and general expenses

Selling and distribution expenses

Salaries, wages and amenities - note 26.1 36,062 36,440Travelling 8,918 7,980Rent, rates and taxes 3,371 2,907Freight and distribution 61,674 53,167Insurance 1,525 1,402Advertising 35,946 32,879Depreciation 6,414 6,163Other expenses 11,719 8,511

165,629 149,449Administration and general expenses

Salaries, wages and amenities - note 26.2 128,383 119,683Travelling 29,233 30,859Rent, rates and taxes 8,031 5,953Insurance 3,636 6,018Printing, stationery and periodicals 12,328 12,074Postage, telephone and telex 19,932 21,296Motor vehicles running 8,315 8,669Computer charges 9,026 18,204Professional services - note 31 11,026 11,337Repairs and maintenance 14,258 9,013Depreciation/amortisation on fixed assets 61,796 62,537Depreciation on investment property 868 712Other expenses 37,323 34,081

344,155 340,436

509,784 489,885

Selling, administration and general expenses include Rs. 26.238 million (2002: Rs. 22.641 million)for stores and spares consumed.


Salaries, wages and amenities include followingin respect of retirement benefits:

PensionCurrent service cost 1,275 3,465Interest cost for the year 2,744 11,158Expected return on plan assets (2,372) (10,138)Contribution made by the employees (389) (1,162)Recognition of past service cost 295 1,111Recognition of loss/(gain) 173 (338)

1,726 4,096



066

GratuityCurrent service cost 468 -Interest cost for the year 695 -Expected return on plan assets (1,215) -Recognition of (gain) (264) -

(316) -

In addition to above, salaries, wages and amenities include Rs. 0.911 million (2002: Rs. 1.719 million)and Rs. (0.609) million (2002: Rs. 2.31 million) in respect of provident fund contribution by thecompany and accumulating compensated absences respectively.


Salaries, wages and amenities include followingin respect of retirement benefits:

PensionCurrent service cost 4,672 1,001Interest cost for the year 10,060 3,223Expected return on plan assets (8,696) (2,928)Contribution made by the employees (1,425) (336)Recognition of past service cost 1,083 321Recognition of loss/(gain) 634 (98)

6,328 1,183Gratuity

Current service cost 1,717 604Interest cost for the year 2,546 1,350Expected return on plan assets (4,453) (1,979)Recognition of (gain) (967) (150)

(1,157) (175)

In addition to above, salaries, wages and amenities include Rs. 3.245 million (2002: Rs. 2.290 million)and Rs. 0.894 million (2002: Rs. 2.270 million) in respect of provident fund contribution by thecompany and accumulating compensated absences respectively.



067

27. Other income

Management and technical fee 5,723 -Rental income - 305Dividend income from associated companies - note 27.1 457,554 498,865Insurance commission from an associated company 2,928 2,667Rental income from investment property

Associated companies 20,602 17,401Profit on disposal of fixed assets 19,777 3,660Scrap sales 499 786Provisions and unclaimed balances written back 41,957 37,066Agricultural income 1,558 1,100Income on foreign currency deposits - 8,745Income on rupee deposits 469 1,829Profit on outside jobs including Rs. 1.139

million (2002: Rs. 0.772 million) fromassociated companies 2,120 1,476

Unrealised gain on investments available for sale 11,400 -Others -note 27.2 9,861 4,380

574,448 578,280

27.1 Dividend income from associated companies

Tetrapak Pakistan Limited 330,000 396,000International General Insurance Company

of Pakistan Limited 6,801 5,152Nestle Milkpak Limited 58,388 43,791Coates Lorilleux Pakistan Limited 32,365 23,922Tri-Pack Films Limited 30,000 30,000

457,554 498,865

27.2 These include Rs. 0.953 million (2002: Rs. 0.790 million) in respect of unrealised profit on TFCsof First International Investment Bank Limited, an associated concern.

28. Financial charges

Interest and mark up including commitment charges onLong-term foreign currency loans - 13,408Redeemable capital and local loans 111,520 99,442Short term running finances 26,001 45,728Finance lease 6,109 10,239Deferred import duties 2,115 3,470

Loan handling charges 252 553Exchange loss 782 1,160Bank charges 4,529 2,800

151,308 176,800



068

29. Other charges

Workers' welfare fund 14,107 19,643Workers' profit participation fund 54,768 42,993Donations - note 32 1,289 1,293

70,164 63,929

30. Provision for taxation

For the yearCurrent 270,000 190,000Deferred (12,000) (51,000)

258,000 139,000Prior years

Current (128,608) 2,853Deferred 94,000 -

(34,608) 2,853

223,392 141,853

30.1 Tax charge reconciliation % age % age

Numerical reconciliation between the average effectivetax rate and the applicable tax rate.

Applicable tax rate 35 35

Tax effect of amounts that are:Deductible for tax purposes - (0.90)Not deductible for tax purposes 3.55 2.80Exempt for tax purposes (0.58) (0.39)Chargeable to tax at different rates (13.24) (18.78)

Effect of change in prior years' tax (3.34) 0.36Tax effect under presumptive tax regime and others 0.15 (0.30)

(13.46) (17.21)

Average effective tax rate charged to profit and loss account 21.54 17.79


069

31. Professional services

The charges for professional services include the followingin respect of auditors' services for:

Statutory audit 470 425Half yearly review 200 200Tax services 2,980 3,155Share transfer, workers’ profit participation fund audit,

management staff pension fund audit, special reportsand certificates for lending agencies and sundry services 400 565

Out of pocket expenses 209 106

4,259 4,45132. Donations

Names of donees in which a director or his spouse has an interest:

Pakistan Olympic Association, Lahore(Syed Wajid Ali, Chief Executive is the President of the Association) - 100

Liaquat National Hospital, Karachi(Syed Wajid Ali, Chief Executive is the Chairman of the Hospital) 400 400

Gulab Devi Chest Hospital, Lahore(Syed Wajid Ali, Chief Executive is the President of the Hospital) 35 440

Institute of Islamic Culture, Lahore(Syed Wajid Ali, Chief Executive is the President of the Institute) 100 -

The All Pakistan Musical Conference, Lahore(Syed Wajid Ali, Chief Executive is the President of the Conference) 30 -

33. Remuneration of Chief Executive, Directors and Executives

33.1 The aggregate amount charged in the accounts for the year for remuneration, including certainbenefits, to the Chief Executive, full time working Directors including alternate director and


070

35. Capacity and production - tonnes

Paper and paperboard produced 101,900 87,000 86,641 72,642Paper and paperboard converted 70,000 70,000 66,870 59,808Plastics all sorts converted 7,500 6,000 5,850 5,236

The variance of actual production from capacity is on account of the product mix.

Actual production20022003

Capacity20022003

Managerial remuneration 2,385 2,206 10,544 9,466 64,804 58,840 Contribution to provident,

gratuity, pension and welfare funds - -- 2,920 2,329 13,448 11,212

Housing 680 549 4,755 4,264 23,656 21,716Utilities 627 718 934 838 8,645 7,573Leave passage 18 -- 778 698 1,357 1,278Medical expenses 934 328 257 245 3,912 3,590Club expenses 13 13 30 27 4 6Others - -- - - 11,599 8,886

4,657 3,814 20,218 17,867 127,425 113,101

The company also provides the Chief Executive and some of the Directors and Executives with freetransport and residential telephones.


Directors & alternateDirectorChief Executive Executives

2003 20022003 20022003 2002Number of persons 1 1 5 5 179 160

Executives of the company is as follows:

33.2 Remuneration to other directors

Aggregate amount charged in the accounts for the year for fee to 3 directors (2002: 3 directors) wasRs. 5,500 (2002: Rs. 5,500).

34. Transactions with related parties

The related parties comprise subsidiaries, associated undertakings and directors. The company in thenormal course of business carries out transactions with various related parties. Amounts due fromand to related parties are shown under receivables and payables, amounts due from directors areshown under receivables and remuneration of directors is disclosed in note 33. Other significanttransactions with related parties are as follows:

Purchase of goods and services Comparable uncontrolled 466,214 447,262Sale of goods and services Cost plus 1,093,158 1,008,261Rental income Cost plus 20,602 17,401

All transactions with related parties have been carried out on commercial terms and conditions underthe above pricing methods.

Pricing methodDescription (Rupees in thousand)20022003

071

36. Rates of exchange

Liabilities in foreign currencies have been translated into Rupees at USD 1.7355 (2002: USD 1.7094),EURO 1.3801 (2002: EURO 1.6300), SFR 2.1529 (2002: SFR 2.3719), SEK 12.5313 (2002: SEK14.9477), GBP 0.9745 (2002: GBP 1.0661) and YEN 185.5632 (2002: YEN 202.8398) equal toRs. 100.

37. Cash generated from operations

Profit before taxation 1,036,905 797,225Adjustments for:

Depreciation/amortisation on fixed assets 442,250 413,139Depreciation on investment property 868 712Amortisation on leased assets 11,184 11,000Provision for accumulating compensated absences 8,768 4,407Retirement and other benefits accrued 12,811 9,199Unrealised profit on investments Held to maturity (953) (1,033) Available for sale (11,400) -Net profit on disposal of fixed assets (19,777) (3,660)Financial charges 151,308 176,800Dividend income (457,554) (498,865)

Profit before working capital changes 1,174,410 908,924

Effect on cash flow due to working capital changes(Increase)/decrease in trade debts (34,330) 52,808(Increase) in stores and spares (19,242) (36,394)Decrease/(increase) in stock-in-trade 32,087 (114,411)(Increase)/decrease in loans, advances, deposits, prepayments and other receivables (32,997) 26,427Increase/(decrease) in creditors, accrued and other liabilities 17,671 (64,455)

(36,811) (136,025)

1,137,599 772,89938. Cash and cash equivalents

Cash and bank balances 98,166 88,809Finances under mark up arrangements (499,115) (736,033)

(400,949) (647,224)

39. Earnings per share

39.1 Basic earnings per share

Net profit for the year Rupees in thousand 813,513 655,372Weighted average number of ordinary shares Numbers 47,537,080 47,537,080Earnings per share Rupees 17.11 13.79

39.2 Diluted earnings per share

There is no dilution effect on the basic earnings per share of the company as the company has nosuch commitments.


072

40.1 Financial risk management objectives

The company’s activities expose it to a varietyof financial risks, including the effects ofchanges in foreign exchange rates, marketinterest rates such as State Bank of Pakistan’srepo rate and treasury bills rate, credit andliquidity risk associated with various financialassets and liabilities respectively as referredto in note 40 and cash flow risk associated

with accrued interests in respect of borrowingsas referred to in note 5 and 6.

The company finances its operations throughequity, borrowings and management ofworking capital with a view to maintaining areasonable mix between the various sourcesof finance to minimize risk.

40. Financial assets and liabilities

Financial assets

On balance sheet

Long-term investments - 7,985 7,985 - 31,425 31,425 39,410 7,058 39,410 7,058Loans to employees - - - 204 1,005 1,209 1,209 1,087 - -Long-term security deposits - - - - 2,976 2,976 2,976 2,753 2,976 2,753Trade debts - - - 577,548 - 577,548 577,548 543,218 577,548 543,218Advances, deposits and prepayments:

Trade deposits - - - 9,345 - 9,345 9,345 3,066 9,345 3,066Profit receivable on bank deposits 12 - 12 - - - 12 32 6 28Others - - - 232 - 232 232 237 232 237

Cash and bank balances 6,328 - 6,328 91,838 - 91,838 98,166 88,809 17,307 15,547

6,340 7,985 14,325 679,167 35,406 714,573 728,898 646,260 646,824 571,907Off balance sheet - - - - - - - - - -

Total 6,340 7,985 14,325 679,167 35,406 714,573 728,898 646,260 646,824 571,907

Financial liabilities

On balance sheet

Non participatory redeemable capital - secured 50,000 - 50,000 - - - 50,000 150,000Non participatory redeemable capital - unsecured - 850,000 850,000 - - - 850,000 850,000Liabilities against assets subject to

finance lease 35,986 1,702 37,688 - - - 37,688 70,400Other payables-secured 4,870 10,238 15,108 - - - 15,108 15,108Finances under mark up arrangements 499,115 - 499,115 - - - 499,115 736,033Creditors, accrued and other liabilities - - - 383,292 - 383,292 383,292 367,111

589,971 861,940 1,451,911 383,292 - 383,292 1,835,203 2,188,652Off balance sheet

Contracts for capital expenditure - - - 20,700 - 20,700 20,700 84,989Guarantees - - - 46 - 46 46 125Letters of credit other than for capital expenditure - - - 225,709 - 225,709 225,709 260,950

- - - 246,455 - 246,455 246,455 346,064

Total 589,971 861,940 1,451,911 629,747 - 629,747 2,081,658 2,534,716

On balance sheet gap (583,631) (853,955) (1,437,586) 295,875 35,406 331,281 (1,106,305) (1,542,392)

Off balance sheet gap - - - (246,455) - (246,455) (246,455) (346,064)

The effective interest/mark up rates for the monetary financial assets and liabilities are mentioned in respective notes to the financial statements.

Interest/mark up bearing

Maturityupto one

year

Maturityafter one

yearSubtotal

Maturityupto one

year

Maturityafter one

yearSubtotal 2003 2002 2003 2002

Non interest bearing Total Credit Risk


073

Taken as a whole, risk arising from thecompany's financial instruments is limited asthere is no significant exposure to marketrisk in respect of such instruments.

(a) Concentration of credit risk

Credit risk represents the accountingloss that would be recognised at thereporting date if counter parties failedcompletely to perform as contracted.The company's credit risk is primarilyattributable to its trade debts and itsbalances at banks. The credit risk onliquid funds is limited because thecounter parties are banks withreasonably high credit ratings. Thecompany has no significantconcentration of credit risk as exposureis spread over a large number of counterparties in the case of trade debts. Outof the total financial assets of Rs.728.898 million (2002: Rs. 646.260million) financial assets which aresubject to credit risk amount to Rs.646.824 million (2002: Rs. 571.907million). To manage exposure to creditrisk, the company applies credit limitsto its customers and also obtainscollaterals, where considered necessary.

(b) Currency risk

Currency risk is the risk that the valueof a financial instrument will fluctuatedue to changes in foreign exchangerates. Currency risk arises mainly wherereceivables and payables exist due totransactions with foreign buyers andsuppliers. Payables exposed to foreigncurrency risks are covered partiallythrough forward foreign exchangecontracts.

The following forward exchange

contracts have been entered into as atDecember 31, 2003 to hedge the foreigncurrency liabilities which are due withinthe next four months:

Forward exchange contracts


Purchase value 56,588Fair value 59,902

(c) Interest rate risk

Interest rate risk is the risk that thevalue of a financial instrument willfluctuate due to changes in marketinterest rates. The company usuallyborrows funds at fixed and market basedrates and as such the risk is minimized.Significant interest rate and cash flowrisk exposures are primarily managedby contracting floor and cap of interestrates as referred to in note 6.

(d) Liquidity risk

Liquidity risk reflects an enterprise'sinability in raising funds to meetcommitments. The company followsan effective cash management andplanning policy to ensure availability offunds and to take appropriate measuresfor new requirements.

40.2 Fair value of financial assets and liabilities

The carrying values of all financial assets andliabilities reflected in the financial statementsapproximate their fair values except for long-term investments, which are stated at cost /amortised cost. Fair value is determined onthe basis of objective evidence at eachreporting date.

074

41. Number of employees 2003 2002

Number of employees as at December 31 3,191 3,084

42. Date of authorization for issue

These financial statements were authorised for issue on January 24, 2004 by the Board of Directorsof the company.

43. Corresponding figures

Corresponding figures have been re-arranged, wherever necessary, for the purposes of comparison.However, no significant re-arrangements have been made.

075



The Directors of Packages Limited take pleasure inpresenting to its shareholders, the auditedConsolidated Accounts of the Group for the yearended December 31, 2003.

General Review

In the year under review the constituent companieshave shown increase in sales as well as in the grossprofit margins.

Operating Results of the Group

The Group’s sales have shown an increase of 17%,on last year figures. The increase in sales can beattributed to new investments made during theprevious year by the Parent Company. The Grouphas managed to increase the gross profit by Rs. 263million which is an increase of 24% from last yeardue to focused efforts to control the costs andreduction in wastages.

The profit before tax has seen an increase of 46%.The increase in profit before tax has been supportedby an increase of 19% in income from associatedcompanies and by a reduction of 19% in financialcharges due to repayment of loans.

The comparison of the audited results for the yearended December 31, 2003 as against December 31,2002 is as follows:

Invoiced Sales 6,861 5,872Gross Profit 1,362 1,099Operating Profit 788 544Income fromAssociated Companies 691 579Profit before tax 1,340 918Combined earnings per share 19.42 13.36

The auditor’s opinion on the Consolidated FinancialStatements is based on un-audited accounts of associatedcompanies as the audits of these companies were inprogress as of the date of signing of this report.

Components of the Group

Coates Lor i l l eux Pakis tan Limited

Coates Lorilleux is engaged in the business ofmanufacturing and selling printing inks. It was setup in 1994 and it enjoys technical collaboration withDainippon Ink and Chemicals Group of Japan, thenew joint venture partner, which is also the largestmanufacturer of inks in the world.

During the year under review, Coates showed avolume increase of 32%. New liquid ink and offsetink technologies were explored and developed tomeet the ever-changing demand of the market andin the period under review its sales have increasedby 22% as compared to last year figures. Profit beforetax has also increased by 28%.

During the year Coates has also achieved certificationof ISO 9001- version “2000”.

Over the course of the coming year, Coates intendsto make further capacity increases in its liquid inkmanufacturing capacity. The new machinery shouldstart operations during the first half of the year.

Packages Lanka (Private) Limited

Packages Lanka was set up in 1996 in Sri Lanka asa joint venture with the Print Care Group of Ceylonand started production in 1998.

The company’s performance is continuouslyimproving. The company is still operating at a lossbut efforts are successfully being made to reduce themagnitude of these losses by improving sales andcontrolling expenditure. The year under review hasseen the loss reduced by Rs.15.7 million.

During the year a new bag-making machine wasadded to capture the high-end export garment market.The customer base was also extended and with theceasefire currently in effect in Sri Lanka the outlookfor 2004 is promising.

Customers’ Support and Staff Relations

We thank our valued customers for their feedbackand support and recognize the role they play in thesuccess of the Group. We would also like to extendour appreciation to all the employees for theircommitment and hard work.

Pattern of Shareholding

The pattern of shareholding is included in the ParentCompany’s shareholders’ information annexed totheir Directors’ report.

(Syed Wajid Ali)Chairman and Chief ExecutiveLahore, January 24, 2004

Directors’ Report on the Consolidated Accounts

2003 2002(Rupees in million)

076

Auditors’ Report to the Members

We have audited the annexed consolidated financialstatements comprising consolidated balance sheetof Packages Limited and its subsidiary companies asat December 31, 2003 and the related consolidatedprofit and loss account, consolidated cash flowstatement and consolidated statement of changes inequity together with the notes forming part thereof,for the year then ended. We have also expressedseparate opinions on the financial statements ofPackages Limited and its subsidiary companies exceptfor Packages Lanka (Private) Limited which wasaudited by other firm of auditors, whose report hasbeen furnished to us and our opinion in so far as itrelates to the amounts included for such company,is based solely on the report of such other auditors.These financial statements are the responsibilty ofthe Holding Company’s management. Ourresponsibility is to express an opinion on thesefinancial statements based on our audit.

Our audit was conducted in accordance with theInternational Standards on Auditing and accordinglyincluded such tests of accounting records and suchother auditing procedures as we considered necessaryin the circumstances.

Group’s share of income from associated companiesof Rs. 691 million shown in the consolidated profitand loss account and note 18 to the consolidatedfinancial statements is based on unaudited accountsof these associated companies.

Except for the effect, if any, of the matter referredto in the preceding paragraph, in our opinion theconsolidated financial statements present fairly thefinancial position of Packages Limited and itssubsidiary companies as at December 31, 2003 andthe results of their operations for the year then ended.


077

Consolidated Balance Sheetas at December 31, 2003

Equity and Liabilities

Share Capital and Reserves

Authorised capital 60,000,000 (2002: 60,000,000) ordinaryshares of Rs. 10 each 600,000 600,000

Issued, subscribed and paid up capital 47,537,080 (2002: 47,537,080) ordinaryshares of Rs. 10 each 3 475,371 475,371

Reserves 4 2,730,854 2,323,915Unappropriated profit 711,113 601,174

3,917,338 3,400,460

Minority Interest 79,142 80,428

Non Participatory Redeemable Capital

Secured 5 - 50,000Un-secured 6 850,000 850,000

850,000 900,000

Long-Term and Deferred Liabilities

Liabilities against assets subject to finance lease 7 1,702 35,200Long-term loans and other payables - secured 8 78,024 110,625Deferred liabilities 9 602,164 514,832

681,890 660,657

Current Liabilities

Current portion of Non-participatory redeemable capital - secured 5 50,000 100,000Liabilities against assets subject to finance lease 7 35,986 35,200Long-term loans and other payables - secured 8 30,653 20,840

Finances under mark up arrangements - secured 10 641,869 884,229Creditors, accrued and other liabilities 11 542,816 517,795Proposed dividend

Packages Limited 404,065 332,760Minority interest 23,505 12,675

1,728,894 1,903,499

Contingencies and Commitments 12 - -

7,257,264 6,945,044


078

Assets


Operating fixed assetsTangible 13.1 3,050,255 3,029,743Intangible 13.2 28,071 65,928

Investment property 14 8,865 9,434Assets subject to finance lease 15 129,082 137,500Capital work-in-progress 16 353,868 196,902

3,570,141 3,439,507

Goodwill 17 58,310 61,310

Other Long-Term Assets

Long-term investments 18 1,091,216 928,334Long-term loans, deposits and other receivables 19 4,361 4,054Retirement and other benefits 20 37,336 26,732

1,132,913 959,120

Current Assets

Stores and spares 21 326,002 306,500Stock-in-trade 22 1,040,013 1,076,621Trade debts 23 652,640 596,226Loans, advances, deposits, prepayments and

other receivables 24 358,947 404,338Cash and bank balances 25 118,298 101,422

2,495,900 2,485,107

7,257,264 6,945,044



079



SalesLocal sales 6,806,772 5,806,394Export sales 54,260 65,966

6,861,032 5,872,360Less: Sales tax and excise duty 908,577 814,438

Commission and discount 15,939 12,741924,516 827,179

5,936,516 5,045,181Less: Cost of goods sold 26 4,574,894 3,946,640

Gross profit 1,361,622 1,098,541Selling, administration and general expenses 27 573,335 553,784

Operating profit 788,287 544,757Other income 28 114,405 82,230

902,692 626,987Financial charges 29 177,180 218,581Other charges 30 76,504 69,238

253,684 287,819649,008 339,168

Income from associated companies 690,549 578,779

Profit before taxation 1,339,557 917,947Provision for taxation

Group 31 251,106 188,496Associated companies 134,830 76,082

385,936 264,578Profit after taxation 953,621 653,369Minority interest 30,617 18,151Profit after taxation and minority interest 923,004 635,218Unappropriated profit brought forward 601,174 625,464

Available for appropriation 1,524,178 1,260,682Appropriations:

Transferred to general reserve 409,000 323,000Proposed dividend-Rs. 8.50 per share(2002: Rs. 7.00 per share) 404,065 332,760

813,065 655,760Unappropriated profit 711,113 604,922

Combined earnings per share 40 19.42 13.36


Note

Consolidated Profit and Loss Accountfor the year ended December 31, 2003


080



Consolidated Cash Flow Statementfor the year ended December 31, 2003

Cash flow from operating activities:

Cash generated from operations 38 1,273,489 891,738Financial charges paid (190,017) (256,689)Taxes paid (88,681) (278,833)Payments for accumulating compensated absences (5,195) (6,624)Retirement and other benefits paid (23,415) (19,312)

Net cash from operating activities 966,181 330,280

Cash flow from investing activities:

Fixed capital expenditure (625,822) (511,773)Net (increase)/decrease in long-term loans, deposits

and other receivables (307) 5,337Sale proceeds of fixed assets 29,355 7,698Dividend received 425,189 474,943Long-term investments (27,017) (6,640)

Net cash used in investing activities (198,602) (30,435)

Cash flow from financing activities:

Proceeds from redeemable capital,long-term loans and other payables - 4,870

Repayment of redeemable capital,long-term loans and other payables (122,788) (665,273)

Payment of finance lease liabilities (32,712) (35,200)Dividend paid (331,770) (213,120)Dividend paid to minority shareholders (21,073) (19,587)

Net cash used in financing activities (508,343) (928,310)

Net increase /(decrease) in cash and cash equivalents 259,236 (628,465)Cash and cash equivalents at the beginning of the year (782,807) (154,342)Cash and cash equivalents at the end of the year 39 (523,571) (782,807)



081



Balance as on December 31, 2001 475,371 203,589 (18,588) 1,817,036 625,464 3,102,872

Net profit for the year - - - - 635,218 635,218

Transferred from profit and loss account - - - 323,000 (323,000) -

Proposed dividend - Rs. 7.00 per share - - - - (332,760) (332,760)

Adjustments for amortised valuespre-operational expenses - - - - (3,748) (3,748)

Exchange adjustments - - (1,122) - - (1,122)


Net profit for the year - - - - 923,004 923,004

Transferred from profit and loss account - - - 409,000 (409,000) -

Proposed dividend - Rs. 8.50 per share - - - - (404,065) (404,065)

Exchange adjustments - - (2,061) - - (2,061)


Generalreserve

Unappro-priatedprofit

Sharecapital

Sharepremium Total


Consolidated Statement of Changes in Equityfor the year ended December 31, 2003

Exchangedifference

on translationof foreignsubsidiary

082



Notes to the Consolidated Accountsfor the year ended December 31, 2003

1. Nature of business

Packages Group comprises the followingbusiness:

- Packaging: Representing manufacture andsale of paper, paperboard, packagingmaterial and tissue products.

- Inks: Representing manufacture and saleof finished and semi finished inks.

2. Significant accounting policies

2.1 Basis of preparation

These accounts have been prepared inaccordance with the requirements of theCompanies Ordinance, 1984 and accountingstandards issued by the InternationalAccounting Standards Committee (IASC) andinterpretations issued by the StandingInterpretations Committee of the IASC, asapplicable in Pakistan except where provisionsof the Companies Ordinance, 1984 requireotherwise in which case such provisions havebeen applied.

2.2 Accounting convention

These accounts have been prepared under thehistorical cost convention, modified bycapitalization of exchange differences referredto in note 2.21, except for revaluation ofcertain financial instruments at fair value andrecognition of certain employee retirementbenefits at present value.

2.2.1 Principles of consolidation

The consolidated financial statements includePackages Limited and all companies in whichit directly or indirectly controls, beneficiallyowns or holds more than 50% of the votingsecurities or otherwise has power to elect andappoint more than 50% of its directors.Subsidiaries are consolidated as from the dateof acquisition using the purchase method.Details of the subsidiaries are given in note43. Investments in associated companies, asdefined in the Companies Ordinance, 1984,are accounted for by the equity method.

Minority interests are that part of the netresults of operations and of net assets ofsubsidiaries attributable to interests which arenot owned by the holding company.

2.3 Taxation

Current

Provision of current tax is based on the taxableincome for the year determined in accordancewith the prevailing law for taxation of income.The charge for current tax is calculated usingprevailing tax rates or tax rates expected toapply to the profit for the year if enacted. Thecharge for current tax also includesadjustments, where considered necessary, toprovision for tax made in previous years arisingfrom assessments framed during the year forsuch years.

Deferred

Deferred tax is accounted for using the balancesheet liability method in respect of alltemporary differences arising from differencesbetween the carrying amount of assets andliabilities in the financial statements and thecorresponding tax bases used in thecomputation of the taxable profit. Deferredtax liabilities are generally recognised for alltaxable temporary differences and deferredtax assets are recognised to the extent that itis probable that taxable profits will be availableagainst which the deductible temporarydifferences, unused tax losses and tax creditscan be utilised.

Deferred tax is calculated at the rates that areexpected to apply to the period when thedifferences reverse based on tax rates thathave been enacted or substantively enactedby the balance sheet date. Deferred tax ischarged or credited in the income statement,except in the case of items credited or chargedto equity in which case it is included in equity.

Provision is not made for taxation whichwould become payable if retained profits of subsidiaries were distributed to the Parent

083

Company, as it is not the intention to distributemore than the dividends, the tax on which isincluded in the accounts.

2.4 Fixed capital expenditure anddepreciation/amortisation

2.4.1 Operating fixed assets

Tangible

Operating fixed assets except freehold landare stated at cost less accumulated depreciationand any identified impairment loss. Freeholdland is stated at cost less any identifiedimpairment loss. Cost in relation to certainplant and machinery signifies historical costand exchange differences referred to in note2.21 and interest, mark up etc. in note 2.22.

Depreciation on all operating fixed assets ischarged to profit on the straight line methodso as to write off the historical cost of anasset over its estimated useful life at thefollowing annual rates:

Plant and machinery 6.25% to 20%Buildings 2.5% to 10%Other equipment 10% to 33.33%Furniture and fixtures 10% to 33.33%Vehicles 20%

Intangible

Expenditure incurred to acquire computersoftware and SAP Enterprise ResourcePlanning System (ERP) are capitalised asintangible assets and stated at cost lessaccumulated amortisation and any identifiedimpairment loss. Intangible assets are amortisedusing the straight line method over a periodof three years.

Depreciation/amortisation on additions tofixed assets is charged from the month inwhich an asset is acquired or capitalised whileno depreciation/amortisation is charged forthe month in which the asset is disposed off.Impairment loss or its reversal, if any, is alsocharged to income. Where an impairment lossis recognised, the depreciation charge isadjusted in the future periods to allocate theasset's revised carrying amount over its

estimated useful life.

The net exchange difference relating to anasset, at the end of each year, is amortised inequal instalments over its remaining usefullife.


2.4.2 Capital work-in-progress

Capital work in progress is stated at cost lessany identified impairment loss.

2.5 Investment property

Property not held for own use or for sale inthe ordinary course of business is classifiedas investment property. The investmentproperty of the Group comprises buildingsand is valued using the cost method i.e., atcost less any accumulated depreciation andany identified impairment loss.

Depreciation on buildings is charged to profiton the straight line method so as to write offthe historical cost of a building over itsestimated useful life at the rates ranging from3.33% to 4% per annum. Depreciation onadditions to investment property is chargedfrom the month in which a property is acquiredor capitalised while no depreciation is chargedfor the month in which the property isdisposed off. Impairment loss or its reversal,if any, is also charged to income. Where animpairment loss is recognised, the depreciationcharge is adjusted in the future periods toallocate the building's revised carrying amountover its estimated useful life.


084

2.6 Leases

(1) The Group is the lessee:

Finance leases

Leases where the Group has substantially allthe risks and rewards of ownership areclassified as finance leases. Assets subject tofinance lease are stated at the lower of presentvalue of minimum lease payments under thelease agreements and the fair value of theassets.

The related rental obligations, net of financecharges, are included in liabilities against assetssubject to finance lease as referred to innote 7. The liabilities are classified as currentand long-term depending upon the timing ofthe payment.

Each lease payment is allocated between theliability and finance charges so as to achievea constant rate on the balance outstanding.The interest element of the rental is chargedto profit over the lease term.

Assets acquired under a finance lease areamortised over the useful life of the asset onthe straight line method at the rates given innote 2.4.1. Amortisation of leased assets ischarged to profit.

Amortisation on additions to leased assets ischarged from the month in which an asset isacquired while no amortisation is charged forthe month in which the asset is disposed off.

Operating leases

Leases where a significant portion of the risksand rewards of ownership are retained by thelessor are classified as operating leases.Payments made under operating leases (netof any incentives received from the lessor)are charged to profit on a straight line basisover the lease term.

(2) The Group is the lessor:

Operating leases

Assets leased out under operating leases areincluded in investment property as referredto in note 14. These are depreciated over theirexpected useful lives on a basis consistent withsimilar owned operating fixed assets. Rentalincome (net of any incentives given to lessees)is recognised on a straight line basis over thelease term.

2.7 Goodwill

Goodwill (being the difference betweenconsideration paid for new interest in Groupcompanies and associated companies and thefair value of the Group's share of their netassets at the date of acquisition) is capitalisedand amortised over its estimated useful life atan annual rate of 10%.

Amortisation of goodwill is charged to profiton a straight line basis.

2.8 Long-term investments

Investments in equity instruments ofassociated companies

Investments in equity instruments ofassociated companies are stated at Group'sshare of their underlying net assets using theequity method.

Other investments

The other investments made by the Groupare classified for the purpose of measurementinto the following categories:

Held to maturity

Investments with fixed maturity that themanagement has the intent and ability to holdto maturity are classified as held to maturityand are initially measured at cost and atsubsequent reporting dates measured atamortised cost using the effective yield method.

085

Available for sale

Investments classified as available for sale areinitially measured at cost, being the fair valueof consideration given. At subsequentreporting dates, these investments areremeasured at fair value (quoted market price),unless fair value cannot be reliably measured.The investments for which a quoted marketprice is not available, are measured at cost asit is not possible to apply any other valuationmethodology. Realised and unrealised gainsand losses arising from changes in fair valueare included in the net profit or loss for theperiod in which they arise.

All purchases and sales of investments arerecognised on the trade date which is the datethat the Group commits to purchase or sellthe investment. Cost of purchase includestransaction cost.

At subsequent reporting dates, the Groupreviews the carrying amounts of theinvestments to assess whether there is anyindication that such investments have sufferedan impairment loss. If any such indicationexists the recoverable amount is estimated inorder to determine the extent of theimpairment loss, if any. Impairment losses arerecognised as expense. Where an impairmentloss subsequently reverses, the carrying amountof the investment is increased to the revised,recoverable amount but limited to the extentof the initial cost of the investment. A reversalof the impairment loss is recognised in income.

2.9 Employee retirement benefits

The main features of the schemes operatedby the Group for its employees are as follows:

(a) All the executive staff participates inan approved funded defined benefitpension plan. In addition, there is anapproved funded defined benefitgratuity plan for all employees. Monthlycontributions are made to thesefunds on the basis of actuarialrecommendation at the rate of 20percent per annum of basic salaries for

pension and 4.33 percent per annumof basic salaries for gratuity. The latestactuarial valuation for the pension andgratuity schemes was carried out as atDecember 31, 2003. The actual returnson plan assets during the year wereRs. 41.424 million and Rs. 21.615million for the pension and gratuityfunds respectively. The actual returnson plan assets represent the differencebetween the fair value of plan assets atbeginning of the year and end of theyear after adjustments for contributionsmade by the Group as reduced bybenefits paid during the year.

The future contribution rates of theseplans include allowances for deficit andsurplus. Projected unit credit method,using the following significantassumptions, is used for valuation ofthese schemes:

Discount rate 8 percent per annum.

Expected rate of increase in salary level5.94 percent per annum.

Expected rate of return 8 percent perannum.

The Group's policy with regard toactuarial gains/losses is to followminimum recommended approachunder IAS 19 (revised 1998).

(b) There is an approved contributoryprovident fund for all employees. Equalmonthly contributions are made by theGroup and the employees to the fund.

(c) Accumulating compensated absences.

Provisions are made annually to coverthe obligation for accumulatingcompensated absences and are chargedto profit.

Retirement benefits are payable to staffon completion of prescribed qualifyingperiod of service under these schemes.

086

2.10 Stores and spares

Usable stores and spares are valued principallyat moving average cost, while items consideredobsolete are carried at nil value. Items in transitare valued at cost comprising invoice valueplus other charges paid thereon.

2.11 Stock-in-trade

Stock of raw materials, except for those intransit, work-in-process and finished goodsare valued principally at the lower of weightedaverage cost and net realisable value. Cost ofwork-in-process and finished goods comprisescost of direct materials, labour and appropriatemanufacturing overheads.

Materials in transit are stated at cost comprisinginvoice value plus other charges paid thereon.

Net realisable value signifies the estimatedselling price in the ordinary course of businessless costs necessary to be incurred in order tomake a sale.

2.12 Financial instruments

Financial assets and financial liabilities arerecognised when the Group becomes a partyto the contractual provisions of the instrument.The particular measurement methods adoptedare disclosed in the individual policy statementsassociated with each item.

2.13 Trade debts

Trade debts are carried at original invoiceamount less an estimate made for doubtfuldebts based on a review of all outstandingamounts at the year end. Bad debts are writtenoff when identified.

2.14 Related party transactions

All transactions with related parties are atarm’s lenght prices determined in accordancewith the pricing method as approved by theBoard of Directors.

2.15 Cash and cash equivalents

Cash and cash equivalents are carried in thebalance sheet at cost. For the purpose of cashflow statement, cash and cash equivalentscomprise cash in hand, demand deposits, othershort-term highly liquid investments that arereadily convertible to known amounts of cashand which are subject to an insignificant riskof change in value and finances under markup arrangements. In the balance sheet, financesunder mark up arrangements are included incurrent liabilities.

2.16 Borrowings

Loans and borrowings are recorded at theproceeds received. In subsequent periods,borrowings are stated at amortised cost usingthe effective yield method. Financial chargesare accounted for on an accrual basis and areincluded in creditors, accrued and otherliabilities to the extent of the amount remainingunpaid.

2.17 Creditors, accrued and other liabilities

Liabilities for trade and other amounts payableare carried at cost which is the fair value ofthe consideration to be paid in future forgoods and services.

2.18 Provisions

Provisions are recognised when the Grouphas a present obligation as a result of a pastevent which, it is probable, will result in anoutflow of economic benefits and a reliableestimate can be made of the amount of theobligation.

2.19 Derivative financial instruments

These are initially recorded at cost and areremeasured to fair value at subsequentreporting dates.

2.20 Revenue recognition

Revenue is recognised on despatch of goodsor on the performance of services except for

087

management fee, which is recognised onreceipt. It includes sales to associatedcompanies but does not include sales byassociated companies or sales between groupcompanies.

Return on deposits is accrued on a timeproportion basis by reference to the principaloutstanding and the applicable rate of return.

Dividend income on equity investments isrecognised as income when the right of receiptis established.

2.21 Foreign currencies

All monetary assets and liabilities in foreigncurrencies are translated into rupees atexchange rates prevailing at the balance sheetdate. Transactions in foreign currencies aretranslated into rupees at the spot rate. All non-monetary items are translated into rupees atexchange rates prevailing on the date oftransaction or on the date when fair valuesare determined.

For the purposes of consolidation, incomeand expense items of the foreign subsidiaryare translated at annual average exchange rate.

All monetary and non monetary assets andliabilities are translated at the exchange rateprevailing at the balance sheet date except forshare capital which is translated at historicalrate. Exchange differences arising on thetranslation of foreign subsidiary are classifiedas equity reserve until the disposal of interestin such subsidiary.

Exchange differences on loans utilised for theacquisition of plant and machinery arecapitalised upto the date of commissioningof the assets.

All other exchange differences are includedin profit currently.

2.22 Borrowing costs

Mark up, interest and other charges onredeemable capital and other long-termborrowings are capitalised upto the date ofcommissioning of the related plant andmachinery, acquired out of the proceeds ofsuch redeemable capital and long-termborrowings. All other mark up, interest andother charges are charged to profit.

3. Issued, subscribed and paid up capital

9,335,349 (2002: 9,228,349) ordinary shares of the Parent Company are held by International GeneralInsurance Company of Pakistan Limited, an associated concern as at December 31, 2003.

Ordinary shares of Rs. 10 eachfully paid in cash

Ordinary shares of Rs. 10 eachissued as fully paid for considerationother than cash

Ordinary shares of Rs. 10 eachissued as fully paid bonus shares

11,260,868

148,780

36,127,432

47,537,080

11,260,868

148,780

36,127,432

47,537,080

112,609

1,488

361,274

475,371

112,609

1,488

361,274

475,371


(Number of shares)20022003

088

4. Reserves

Movement in and composition of reserves is as follows:

CapitalShare premium - note 4.1 203,589 203,589

Exchange difference on translation of foreign subsidiaryAt the beginning of the year (19,710) (18,588)Exchange difference for the year (2,061) (1,122)

(21,771) (19,710)

RevenueGeneral reserve

At the beginning of the year 2,140,036 1,817,036Transferred from profit and loss account 409,000 323,000

2,549,036 2,140,036

2,730,854 2,323,915

4.1 This reserve can be utilised by the Group onlyfor the purposes specified in section 83(2) ofthe Companies Ordinance, 1984.

5. Non participatory redeemable capital - secured


Long-term running finance under mark up arrangements 50,000 150,000Less: Current portion shown under current liabilities 50,000 100,000

- 50,000

Security

This finance is secured by an equitable mortgage of immovable properties, hypothecation of all plantand machinery and a floating charge on all current assets subject to hypothecation of stores, spares,stock-in-trade and trade debts in favour of the Group's bankers referred to in note 10.

All charges in favour of the lenders of this finance rank pari passu with each other.

Terms of repayment

It is a long-term finance arranged from a consortium of banks for a maximum of Rs. 400 millionunder mark up arrangements. Mark up is computed at the rate of Re. 0.0555 per Rs. 1,000 per diemover and above the six months Treasury Bill rate. The finance is repayable in three equal half yearlyinstalments. Mark up is payable half yearly.


089

6. Non participatory redeemable capital -unsecured

These represent Term Finance Certificates(TFCs).

The TFCs have been issued as fully paid scripsof Rs. 5,000 and Rs. 100,000 denominationsor exact multiples thereof. These are listedon the Lahore Stock Exchange and theirmarket value is Rs. 926.500 million as atDecember 31, 2003.

Terms of repayment

Call option

The Group may redeem the TFCs by way ofexercise of the Call option by giving writtennotice and/or public notice to the TFCholders and the trustee at least sixty days priorto the option date(s). The Group will havethe option to call the TFCs from the TFCholders for redemption on January 15, 2005and at the end of every four years thereafter.

The Call option may only be exercised by theGroup with respect to all of the outstandingTFCs.

Put option

TFC holders may exercise their Put optionfor redemption of TFCs by giving writtennotice to the Group at least sixty days priorto the option date(s). TFC holders will havethe option to put the TFCs to the Group forredemption on January 15, 2005 and at theend of every four years thereafter.

The Put option may be exercised by any or

all of the TFC holders for any number ofTFCs held by them. However, any particularTFC cannot be redeemed partially byexercising the Put option.

Rate of return

The return on TFCs is payable quarterly andis calculated at the State Bank of Pakistan'sthree-day repo rate plus 1.25 % per annumsubject to a minimum of 13.50 % per annumand a maximum of 17.00 % per annum.

Trustee

In order to protect the interests of the TFCholders, an investment bank has beenappointed as Trustee under a trust deed datedJune 26, 2001. The Trustee is paid a fee atthe rate 0.065% per annum of the outstandingbalance of the TFCs.

In case the Group defaults on any of itsobligations, the trustee may enforce theGroup's obligations in accordance with theterms of the trust deed. The proceeds of anysuch enforcements shall be distributed to theTFC holders at the time on a pari passu basisin proportion to the amounts owed to thempursuant to the TFCs.

Redemption fund

In accordance with the terms of issue, to ensuretimely repayment of the principal amount tosmall individual investors holding TFCs uptoRs. 200,000 on January 15, 2005 and at the endof every four years thereafter, the Group hasestablished a redemption fund consisting ofTFCs of First International Investment BankLimited as referred to in note 18.2.

7. Liabilities against assets subject to finance lease

Present value of minimum lease payments 37,688 70,400Less: Current portion shown under current liabilities 35,986 35,200

1,702 35,200


090

The present value of minimum lease payments have been discounted at an implicit interest rateranging from 7.25% to 11.70% to arrive at their present value. The lessee has the option to purchasethe assets after expiry of the lease term.

Taxes, repairs, replacements and insurance costs are to be borne by the Group.

The amount of future payments of the lease and the period in which these payments will becomedue are as follows:

8. Long-term loans and other payables - secured

Foreign currency loans -note 8.1 93,569 116,357Other payables -note 8.2 15,108 15,108

108,677 131,465Less: Current portion shown under current liabilities

Foreign currency loans 20,415 20,840Other payables 10,238 -

30,653 20,840

78,024 110,625


The above loan has been obtained by the foreign subsidiary of the Group and is secured by an equitablemortgage of land and building and a charge on all fixed assets of the subsidiary in favour of the lenders.

2003200420052006

Years( R u p e e s i n t h o u s a n d )

-39,811

920874

41,605

Minimumlease

payment

Futurefinancecharge

Present value of leaseliability

-3,825

7616

3,917

-35,986

844858

37,688

35,20035,200

--

70,400

20022003

8.1 Foreign currency loan - secured

This is composed of:

CurrencyInterestpayable

Rate ofinterest

per annumNo. of equalinstalments

Rupee equivalentCurrency balance2003 2002

( I n t h o u s a n d )2003 2002Lender

National DevelopmentBank of Sri Lanka SLR 151,800 184,495 93,569 116,357 15% 54-ending Monthly

July 2008151,800 184,495 93,569 116,357

091

9. Deferred liabilities


Deferred taxation - note 9.1 533,000 450,000Accumulating compensated absences - note 9.2 68,078 63,874Staff gratuity 1,086 958

602,164 514,8329.1 Deferred taxation

The liability for deferred taxation comprises timingdifferences relating to:

Accelerated tax depreciation 545,284 462,755Provision for accumulating compensated absences (23,963) (22,525)Provision for doubtful debts (130) -Provision for slow moving items (1,374) -Provision for doubtful receivables (587) -Impairment loss in value of investments (16,230) (16,230)Investments in associated companies 30,000 26,000

533,000 450,000

Deferred tax liability has not been provided for the taxes that would be payable on the undistributedprofits of subsidiaries based on the Group's policy as referred to in note 2.3. Such undistributedprofits as at December 31, 2003 are Rs. 51.572 million (2002: Rs. 43.713 million).

9.2 Accumulating compensated absences

Opening balance 63,874 63,265Provision for the year 9,399 7,233



10. Finances under mark up arrangements - secured

Running finances - note 10.1 169,745 166,769Short-term finances - note 10.2 472,124 717,460

641,869 884,229



8.2 Other payables - secured

These represent 50% of the import duties deferred under the Deferment of Import Duties Rules,1991. The balance is repayable by the year 2005. Surcharge is payable half yearly at a rate of 14% perannum. The liability is secured by bank guarantees included in note 10.2.

092

10.1 Running finances - secured

Short-term running finances available froma consortium of commercial banks undermark up arrangements amount toRs. 2,699.198 million (2002: Rs. 1,850.170million). The rates of mark up range fromRe. 0.0616 to Re. 0.4931 per Rs. 1,000 perdiem or part thereof on the balancesoutstanding. In the event, the Group fails topay the balances on the expiry of the quarter,year or earlier demand, mark up is to becomputed at the rates ranging from Re. 0.0740to Re. 0.8770 per Rs. 1,000 per diem or partthereof on the balances unpaid. The aggregaterunning finances are secured by hypothecationof stores, spares, stock-in-trade and tradedebts.

10.2 Short-term finances - secured

Term finances available from a consortium

of commercial banks under mark uparrangements amount to Rs. 478.192 million(2002: Rs. 723.310 million). The rates of markup range from Re. 0.0384 to Re. 0.3835 perRs. 1,000 per diem or part thereof. Theaggregate term finances are secured byhypothecation of stores, stock-in-trade andtrade debts.

Of the aggregate facility of Rs. 1,328.400million (2002: Rs. 1,046.600 million) foropening letters of credit and Rs. 354 million(2002: Rs. 384 million) for guarantees, theamount utilised at December 31, 2003 wasRs. 198.492 million (2002: Rs. 197.062 million)and Rs. 166.443 million (2002: Rs. 150.557million) respectively. Of the facility forguarantees, Rs. 322.50 million (2002: Rs.322.50 million) is secured by a secondhypothecation charge over stores, spares,stock-in-trade and trade debts.

11. Creditors, accrued and other liabilities

Trade creditors - note 11.1 63,981 47,212Accrued liabilities 313,158 283,949Sales tax payable 445 15,016Customers' balances 31,928 21,066Deposits - interest free repayable on demand 3,787 3,242Interest accrued on other payables - secured 1,611 2,239Mark up accrued on non participatory

redeemable capital - Secured 940 5,548- Un-secured 23,913 23,909

Mark up accrued on finances under mark uparrangements - secured 3,352 10,957

Workers' profit participation fund - note11.2 60,297 47,433Workers' welfare fund 14,709 34,293Unclaimed dividends 4,861 3,871TFCs payable - note 25.2 1,391 1,322Others - note 11.3 18,443 17,738

542,816 517,795

11.1 Trade creditors include amount due to associated companies Rs. 20.379 million (2002: Rs. 7.703 million).


093

11.2 Workers' profit participation fund

Opening balance 47,433 31,720Provision for the year - note 30 60,458 47,633Interest for the year - note 29 - 29

107,891 79,382Less: Payments made during the year 47,594 31,949Closing balance 60,297 47,433

11.3 Others include an amount of Rs. 0.644 million(2002: Rs. 0.554 million) due to employees.

12. Contingencies and commitments

12.1 Contingencies

(i) Guarantees to bank for repayment ofloans by employees Rs. 0.046 million(2002: Rs. 0.125 million).

(ii) Guarantees to Director General ofCustoms amounting to Rs. 3.68 million(2002: Rs. 2.74 million).

(iii) Claims against the Group notacknowledged as debts Rs. 9.580 million(2002: Rs. 7.835 million).

(iv) Against a sales tax refund aggregatingRs. 12.827 million determined by theSales Tax Officer (STO) on the basisof the orders of the Appellate AssistantCommissioner (AAC) for theassessment years 1977-78 through 1980-81 and recognised in the accounts in1985, the STO filed an appeal in 1986with the Income Tax Appellate Tribunal(ITAT) against the Orders of the AACfor these years. The orders of the AACwere based on a decision already givenby the ITAT on the Parent Company'sappeal for application of a lower rateof sales tax on self consumed materialfor earlier years. Pending the outcomeof the appeal filed by STO no

adjustment has been made for therefunds recognised in the accounts asthe management is of the view that theappeal of the STO will not be upheldby the ITAT.

(v) For the assessment years 1999-2000and 2000-2001, Inspecting AdditionalCommissioner (IAC) has raised taxdemand of Rs. 110.525 million andRs. 132.025 million respectively undersection 12(9A) of the Income TaxOrdinance, 1979 on account of excessrevenue reserves. The Income TaxAppellate Tribunal (ITAT) has set asidethe orders of the IAC and remandedthe issue back. The departmentsreference application against the ordersof ITAT has been rejected by the ITATand the department has now filed anappeal directly to the High Court againstdecision of the ITAT. No provisionhas been made in these accounts forthis demand since in the management'sview, there are meritorious groundsthat the ultimate decision would be inthe Group's favour.

12.2 Commitments in respect of

(i) Contracts for capital expenditureRs. 42.616 million (2002: Rs. 86.324million).

(ii) Letters of credit other than for capitalexpenditure Rs. 265.785 million (2002:Rs. 277.214 million).


094

13. Operating fixed assets

13.1 Tangible

Additions to plant and machinery include mark up of Rs. 6.052 million (2002: Rs. 36.176 million).

Fixed assets include assets amounting to Rs. 12.476 million (2002: Rs. 19.615 million) of the Groupwhich are not in operation.

The cost of fully depreciated assets which are still in use as at Decemeber 31, 2003 is Rs. 1,263.440million (2002: Rs. 1,149.038 million).

Freehold land 128,137 - (507) - 908 127,329 - - - - - 127,329(1,209)

Buildings on freehold land 234,214 - (780) - 16,993 239,169 51,573 (170) - 10,427 55,864 183,305(11,258) (5,966)

Buildings on leasehold land 137,350 - - - - 137,350 27,267 - - 4,965 32,232 105,118

Plant and machinery 5,736,796 - (4,741) - 369,754 6,050,238 3,265,231 (1,254) - 361,416 3,574,226 2,476,012(51,571) (51,167)

Other Equipment 242,615 - (885) - 60,496 298,322 174,100 (806) - 34,203 203,991 94,331(3,904) (3,506)

Furniture and fixtures 19,375 - (105) - 1,533 20,447 11,278 (67) - 2,553 13,449 6,998(356) (315)

Vehicles 146,250 - (26) - 20,693 152,043 85,545 (22) - 22,288 94,881 57,162(14,874) (12,930)

2003 6,644,737 - (7,044) - 470,377 7,024,898 3,614,994 (2,319) - 435,852 3,974,643 3,050,255(83,172) (73,884)

2002 5,914,878 (882) (7,829) (10,368) 762,019 6,644,737 3,222,124 (2,007) (5,220) 409,600 3,614,994 3,029,743(13,081) (9,503)




Additions/(deletions)




Depreciationcharge/

(deletions)for the year


Book valueas at

December31, 2003Adjustments

Exchangeadjustment onopening cost

Exchangeadjustmenton openingaccumulateddepreciation

13.2 Intangible

Computer software and

ERP system 115,927 438 116,365 49,999 38,295 88,294 28,071

2003 115,927 438 116,365 49,999 38,295 88,294 28,071

2002 115,927 - 115,927 11,520 38,479 49,999 65,928


AccumulatedamortisationDecember31, 2002Additions


Amortisationcharge

for the year

Book valueas at

December31, 2003


December31, 2003

095


13.3 The depreciation/amortisation charge for the year has been allocated as follows:

Cost of goods sold - note 26 399,070 2,879 401,949 375,799Selling and distribution expenses - note 27 6,425 - 6,425 6,179Administration and general expenses - note 27 30,357 35,416 65,773 66,101

435,852 38,295 474,147 448,079

Depreci-ation

Total2003 2002

Amortis-ation


13.4 Disposal of operating fixed assetsParticularsof the assets

Accumulateddepreciation Book value

SaleproceedsCost

Mode ofdisposal Sold to

( R u p e e s i n t h o u s a n d )Motor cars Executives

Mr. Mansoor Hassan Bhatti 257 257 - 103 Company policyIqbal Bhatti 485 210 275 355 -do-Sahil Zaheer 319 144 175 189 -do-Syed Kamal Ali 761 761 - 224 -do-Meraj Din 384 346 38 177 -do-Khawaja Rizwan Hassan 256 256 - 78 -do-Sohail Ahmad 300 215 85 138 -do-Osman Farooq 349 58 291 297 -do-Bashir Ahmed Bhatti 310 310 - 104 -do-Lt. Col. (Retd.) Sajid Ikram 595 594 1 357 -do-Abdul Qudoos 440 330 110 254 -do-Muhammad Ashraf 441 441 - 221 -do-Muhammad Murid Hussain 315 315 - 124 -do-Rana Javaid Bashir 323 307 16 129 -do-Hafiz Manzoor Hussain 253 253 - 76 -do-Sahibzada Rashid Hameed 270 270 - 90 -do-Aziz Mahmood 260 260 - 81 -do-Muhammad Ajmal 625 604 21 400 -do-Ali Ahmed 247 239 8 91 -do-Muhammad Asif Ameer 319 144 175 209 -do-Akram Naeem 280 280 - 97 -do-Mohammad Majeed Ghani 297 297 - 110 -do-Saeed Ahmad 400 400 - 190 -do-Pervaiz Raza Mirza 271 271 - 114 -do-Ijaz Ahmad Khan 485 485 - 279 -do-Habib Ahmed 363 109 254 303 -do-Rafi Iqbal Ahmed 848 848 - 80 -do-Tariq Akram Khan Niazi 251 251 - 114 -do-Sheikh Saif-ur-Rehman 354 354 - 175 -do-Mohammad Yasin 411 411 - 220 -do-Muhammad Ashraf Anjum 289 289 - 123 -do-Tanveer Ahmed 397 397 - 171 -do-Khalid Mahmood Sameja 379 265 114 233 -do-

Dr. S Mughis Asghar 846 846 - 160 -do-Ms. Fatima Saleem 439 256 183 292 -do-

OutsidersMr. Fazal Ahmad 505 505 - 410 Auction

Pervaiz 246 246 - 246 Negotiation International General Insurance

Company of Pakistan Limited 304 106 198 280 Insurance claimsLand Miscellaneous 1,209 - 1,209 4,435 NegotiationBuilding -do- 11,258 5,966 5,292 12,368 NegotiationPlant andmachinery -do- 1,633 1,257 376 - Scrap

-do- 101 83 18 41 NegotiationOther equipment -do- 100 27 73 - Scrap

-do- 1,442 1,135 307 430 NegotiationFurnitureand fixture -do- 155 125 30 - ScrapItems below book value of Rs. 5,000 52,400 52,361 39 4,787

83,172 73,884 9,288 29,355

096

15. Assets subject to finance lease

Plant and machinery 176,000 - 176,000 38,500 11,000 49,500 126,500

Vehicles - 2,766 2,766 - 184 184 2,582

2003 176,000 2,766 178,766 38,500 11,184 49,684 129,082

2002 176,000 - 176,000 27,500 11,000 38,500 137,500

Amortisation charge for the year has been allocated to cost of goods sold.

14. Investment property

Buildings on leasehold land 15,067 - - 15,067 5,633 - 569 6,202 8,865

2003 15,067 - - 15,067 5,633 - 569 6,202 8,865

2002 - 10,368 4,699 15,067 - 5,220 413 5,633 9,434

Depreciation charge for the year has been allocated to administration and general expenses.

Fair value of the investment property transferred from fixed assets, based on the valuation carriedout by an independent valuer, as at December 31, 2003 is Rs. 15.513 million (2002: Rs. 15.970 million).


Transfersfrom fixed

assets Additions



Transfersfrom fixed

assets

Depreciationcharge

for the year


Book valueas at

December31, 2003



Cost toDecember31, 2002 Additions


AccumulatedamortisationDecember31, 2002

Amortisationcharge

for the year


December31, 2003

Book valueas at

December31, 2003

16. Capital work-in-progress

Plant and machinery 292,854 190,162Civil works and buildings 61,014 6,740

353,868 196,902

Cost of plant and machinery includes mark up of Rs. Nil (2002: Rs. 2.150 million).


097

17. Goodwill

Opening balance 61,310 60,626Acquisition during the year 7,017 9,105

68,327 69,731Less: Amortised during the year 10,017 8,421

58,310 61,310

18. Long-term investments

In equity instruments of associated companies

Cost 192,474 167,474Transferred during the year - 25,000

192,474 192,474Post acquisition profit brought forward 728,802 701,048

921,276 893,522Profit for the year

Before taxation 690,549 578,779Provision for taxation (134,830) (76,082)

555,719 502,697

1,476,995 1,396,219Less: Dividends received during the year 425,189 474,943

Balance as on December 31, 2003 - note 18.1 1,051,806 921,276

Others

Quoted

The Resource Group (TRG) Pakistan Limited2,000,000 (2002: Nil) fully paidordinary shares of Rs.10 eachEquity held 2.78%( 2002: Nil)Market value - Rs. 31.400 million (2002: Rs. Nil) - note 18.3 31,400 -

In associated companies

First International Investment Bank Limited6 (2002: 6) term finance certificatesof Rs. 1 million eachMarket value - Rs. 7.50 milliom(2002: Rs. 8.10 million) - note 18.2 7,985 7,033

39,385 7,033

1,091,191 928,309Carried forward


098

1,091,191 928,309Unquoted

Pakistan Tourism Development Corporation Limited2,500 (2002: 2,500) fully paid ordinaryshares of Rs. 10 eachChief Executive: Maj.(Rtd) Malik Habib Khan - note 18.3 25 25

Orient Match Company Limited1,900 (2002: 1,900) fully paid ordinaryshares of Rs. 100 eachChief Executive: Khawaja Muhammad Akbar - note 18.3 - -

25 25

1,091,216 928,334

18.1 In equity instruments of associated companies

Quoted

Nestle Milkpak Limited3,649,248 (2002: 3,649,248) fully paidordinary shares of Rs. 10 eachEquity held 8.06% (2002: 8.06%)Market value - Rs. 1,372.117 million(2002: Rs. 797.361 million) 98,192 101,514

International General Insurance Company of Pakistan Limited1,303,470 (2002: 1,133,453) fully paidordinary shares of Rs. 10 eachEquity held 10.61 % (2002: 10.61%)Market value - Rs. 294.584 million(2002: Rs. 105.808 million) 81,199 59,250

Tri-Pack Films Limited10,000,000 (2002: 10,000,000) fully paidordinary shares of Rs. 10 eachEquity held 33.33% (2002: 33.33%)Market value - Rs. 850 million (2002: Rs. 530 million) 306,362 270,446

First International Investment Bank Limited2,644,995 (2002: 2,299,996) fully paidordinary shares of Rs. 10 eachEquity held 9.99 % (2002: 9.99%)Market value - Rs. 34.385 million (2002: Rs. 27.02 million) 33,987 31,831

519,740 463,041


Brought forward

Carried forward

099

519,740 463,041Unquoted

Tetra Pak Pakistan Limited26,400,000 (2002: 22,000,000) fully paidordinary shares of Rs. 10 eachEquity held 44% (2002: 44%)Value of investment based on the net assetsshown in the audited accounts as atDecember 31, 2002 Rs. 344.835 million(2001: Rs. 333.773 million) 527,966 454,173

Coca-Cola Beverages Pakistan Limited500,000 (2002: 500,000) fully paidordinary shares of Rs. 10 eachEquity held 0.14 % (2002: 0.14%)Value of investment based on the net assetsshown in the audited accounts as atDecember 31, 2002 Rs. 1.617 million(2001: Rs. 1.880 million) 4,100 4,062

532,066 458,235

1,051,806 921,276

18.2 Investment in TFCs has been made in accordance with the terms of issue of the term financecertificates of Rs. 850 million as referred to in note 6. The rate of profit on these TFCs is 16% perannum payable at maturity. For the purpose of measurement these have been classified as held tomaturity investments.

18.3 For the purpose of measurement these have been classified as available for sale investments.

19. Long-term loans, deposits and other receivables

Loans to employees - considered good - note 19.1 1,005 926Security deposits 3,356 3,128Preliminary and pre-operational expenses - note 19.2 - -

4,361 4,054

19.1 These represent interest free loans to employees for purchase of cycles and motor cycles and arerepayable in monthly instalments over a period of 50 to 138 months.

Loans to employees aggregating Rs. 0.159 million (2002: Rs. 0.065 million) are secured by jointregistration of motor cycles in the name of employees and the Parent Company. The remaining loansare unsecured.

Long-term loans to employees outstanding for more than 3 years amount to Rs. 0.618 million (2002:Rs. 0.610 million).


Brought forward


100

19.2 Preliminary and pre-operational expenses

Opening balance - 4,856Less: Amortised during the year - 4,856

- -

20. Retirement and other benefits

Pension fund - note 20.1 (17,219) (17,226)Gratuity fund - note 20.2 54,555 43,958

37,336 26,732

20.1 Pension fund


Fair value of plan assets 347,977 299,969Present value of defined benefit obligation (386,314) (358,145)Non vested (past service) cost to be recognised in later periods 18,130 21,151Unrecognised actuarial losses 2,988 19,799


Net (liability) as at January 1 (17,226) (15,027)Charge to profit and loss account (17,653) (11,137)Contribution by the Parent Company 17,660 8,938


Fair value of plan assets include ordinary shares and term finance certificates (TFCs) of the ParentCompany, whose fair value as at December 31, 2003 is Rs. 17.546 million (2002: Rs. 9.180 million)and Rs. 3.270 million (2002: Nil) respectively.

20.2 Gratuity fund

The amounts recognised in the balance sheet are as follows:Fair value of plan assets 248,973 238,249Present value of defined benefit obligation (151,673) (141,317)Unrecognised actuarial (gains) (42,745) (52,974)


Net assets as at January 1 43,958 31,646Credit to profit and loss account 4,842 1,938Contribution by the Parent Company 5,755 10,374


Fair value of plan assets include ordinary shares of the Parent Company, whose fair value as atDecember 31, 2003 is Rs. 1.318 million (2002: Rs. 2.620 million).



101

21. Stores and spares

Stores [including in transit Rs. 4.050 million(2002: Rs. 6.008 million)] 121,068 131,274Spares [including in transit Rs. 16.742 million(2002: Rs. 10.633 million)] 204,934 175,226

326,002 306,500

Stores and spares include items which may result in fixed capital expenditure but are not distinguishable.

22. Stock-in-trade

Raw materials [including in transit Rs. 130.983 million(2002: Rs. 102.728 million)] 652,611 659,697Work-in-process 90,333 81,419Finished goods 300,591 337,070

1,043,535 1,078,186Less: Provision for slow moving stocks 3,522 1,565

1,040,013 1,076,621

Finished goods of Rs. 18.835 million (2002: Rs. 47.420 million) are being carried at net realisable value.

23. Trade debts

Considered goodAssociated undertakings - note 23.1 117,212 77,663Others 537,116 518,563

654,328 596,226Considered doubtful

Associated undertakings - -Others 335 2,573

335 2,573

Less: Provision for doubtful debts 2,023 2,573

652,640 596,226

Trade debts include secured debts of Rs. 1.020 million (2002: Rs. 3.778 million).




102


Treet Corporation Limited 4,014 472Nestle Milkpak Limited 44,497 30,970Tetra Pak Pakistan Limited 53,655 40,184Zulfiqar Industries Limited 5,847 2,528Tri-Pack Films Limited 2,814 1,578Ceylon Tea Services Limited 6,107 1,837Coca-Cola Beverages Pakistan Limited 278 94

117,212 77,663

These are in the normal course of business and are interest free. The maximum aggregate amountoutstanding due from associated undertakings at the end of any month during the year was Rs. 151.611million (2002: Rs. 126.110 million).

24. Loans, advances, deposits, prepayments and other receivables

Loans to employees - considered good 204 161Advances - considered good

To employees - note 24.1 7,650 8,815To suppliers 18,191 17,401

25,841 26,216

Advances to suppliers- considered doubtful 74 74Due from associated undertakings - note 24.2 19,659 7,237Trade deposits 9,345 3,066Security deposits 880 830Prepayments 10,207 9,889Balances with statutory authorities

Excise duty 241 2,042Customs duty 1,042 1,294

1,283 3,336

Profit receivable on bank deposits 12 32Claims recoverable from Government

Sales tax 14,734 3,274Income tax recoverable - note 24.3 36,013 36,013Income tax refundable 233,505 312,930Octroi-considered doubtful 1,506 1,506

285,758 353,723

Defence levy recoverable 260 266Other receivables 7,004 1,088

360,527 405,918

Less: Provision against doubtful advances 1,580 1,580

358,947 404,338



103

24.1 Included in advances to employees are amounts due from Chief Executive, Directors and Executivesof Rs. 0.030 million, Rs. 0.301 million and Rs. 3.304 million respectively (2002: Chief ExecutiveRs. 0.081 million, Directors Rs. 0.310 million and Executives Rs. 4.946 million).The maximum aggregate amount of advances due from Chief Executive, Directors and Executivesat the end of any month during the year were Rs. 0.065 million, Rs. 2.237 million and Rs. 7.404 millionrespectively (2002: Chief Executive Rs. 0.684 million, Directors Rs. 1.098 million and ExecutivesRs. 13.485 million).


Tetra Pak Pakistan Limited 9,166 4,711Tri-Pack Films Limited 78 8International General Insurance Company

of Pakistan Limited 415 2,518First International Investment Bank Limited 10,000 -

19,659 7,237These relate to normal business of the Group and are interest free. The maximum aggregate amountof advances to associated companies at the end of any month during the year was Rs. 19.659 million(2002: Rs. 16.851 million).

24.3 In 1987, the Income Tax Officer (ITO)reopened the Parent Company's assessmentsfor the accounting years ended December 31,1983 and 1984 disallowing primarily tax creditgiven to the Parent Company under section107 of the Income Tax Ordinance, 1979. Thetax credit amounting to Rs. 36.013 million onits capital expenditure for these years wasrefused on the grounds that such expenditurerepresented an extension of the ParentCompany's undertaking which did not qualifyfor tax credit under this section in view of theParent Company's location. The assessmentsfor these years were revised by the ITO onthese grounds and taxes reassessed wereadjusted against certain sales tax refunds andthe tax credits previously determined by theITO and set off against the assessmentsframed for these years.The Parent Company had filed an appealagainst the revised orders of the ITO before

the Commissioner of Income Tax (Appeals)[CIT(A)], Karachi. The Commissioner has inhis order issued in 1988 held the assessmentsreframed by the ITO for the years 1983 and1984 presently to be void and of no legaleffect. The ITO has filed an appeal againstthe Commissioner’s order with the IncomeTax Appellate Tribunal (ITAT). The ITAThas in its order issued in 1996 maintained theorder of CIT(A). The assessing officer afterthe receipt of the appellate order passed byCIT(A), has issued notices under section 65of the Income Tax Ordinance, 1979 and theParent Company has filed a writ petitionagainst the aforesaid notices with the HighCourt of Sindh, the outcome of which is stillpending.The amount recoverable Rs. 36.013 millionrepresents the additional taxes paid as a resultof the disallowance of the tax credits onreframing of the assessments.

25. Cash and bank balances

At banksOn deposit accounts

USD 175,149.77 (2002: USD Nil) 10,427 -On savings accounts [including USD 43,708

(2002: USD 164,962)] - note 25.1 6,328 17,882On current accounts [including USD 6,339

(2002: USD 14,472)] - note 25.2 94,144 74,908110,899 92,790

In hand 7,399 8,632118,298 101,422



104

25.1 The balances in savings accounts bear mark up which ranges from 0.90 % to 2.00 % per annum.

25.2 Included in these are total restricted funds of Rs. 1.391 million (2002: Rs. 1.322 million) held aspayable to TFC holders as referred to in note 11.

26. Cost of goods sold

Opening work-in-process 81,419 69,628Materials consumed 2,466,557 2,096,223Salaries, wages and amenities - note 26.1 413,274 376,017Fuel and power 628,125 545,790Production supplies 166,800 166,079Excise duty and sales tax 42,726 76,752Rent, rates and taxes 6,780 2,923Insurance 40,004 37,195Repairs and maintenance 242,295 277,876Packing expenses 40,430 25,976Provision for slow moving stocks 2,325 1,565Depreciation/amortisation on fixed assets 401,949 375,799Amortisation on leased assets 11,184 11,000Technical fee and royalty 26,565 12,522Travelling and conveyance 1,307 -Other expenses 57,008 41,336

4,628,748 4,116,681Less: Closing work-in-process 90,333 81,419

Cost of goods produced 4,538,415 4,035,262Opening stock of finished goods 337,070 248,448

4,875,485 4,283,710Less: Closing stock of finished goods 300,591 337,070

4,574,894 3,946,640

Cost of goods produced includes Rs. 537.745 million (2002: Rs. 458.876 million) for stores and sparesconsumed, Rs. 7.842 million (2002: Rs. 3.290 million) and Rs.0.669 million (2002: Rs. 1.822 million)for raw material and stores and spares written off respectively.


105


Salaries, wages and amenities include following in respect of retirement benefits:

PensionCurrent service cost 7,086 4,954Interest cost for the year 15,257 15,958Expected return on plan assets (13,188) (14,498)Contribution made by the employees (2,161) (1,661)Recognition of past service cost 1,643 1,588Recognition of loss/(gain) 961 (483)

9,598 5,858Gratuity

Current service cost 4,998 6,082Interest cost for the year 7,412 13,602Expected return on plan assets (12,965) (19,940)Recognition of (gain) (2,814) (1,507)

(3,369) (1,763)

In addition to above, salaries, wages and amenities include Rs. 10.102 million (2002: Rs. 9.222 million)and Rs. 8.609 million (2002: Rs. (0.173) million) in respect of provident fund contribution by theParent Company and accumulat ing compensated absences respect ive ly.

27. Selling, administration and general expenses

Selling and distribution expenses

Salaries, wages and amenities - note 27.1 36,780 37,415Travelling 9,608 8,900Rent, rates and taxes 3,371 2,907Freight and distribution 65,369 55,807Insurance 1,526 1,404Advertising 39,279 37,075Depreciation 6,425 6,179Other expenses 12,278 8,689

174,636 158,376Administration and general expenses

Salaries, wages and amenities - note 27.2 151,358 144,651Travelling 33,466 35,322Rent, rates and taxes 9,100 6,837Insurance 3,954 6,293Printing, stationery and periodicals 13,710 13,837Postage, telephone and telex 22,268 24,347

233,856 231,287



Carried forward

106

233,856 231,287

Motor vehicles running 8,586 9,006Computer charges 9,026 18,204Professional services - note 32 12,052 13,798Repairs and maintenance 15,081 9,599Depreciation/amortisation on fixed assets 65,773 66,101Amortisation of goodwill 10,017 8,421Depreciation on investment property 569 413Provision for doubtful advances - 697Bad debts written off 105 724Other expenses 43,634 37,158

398,699 395,408

573,335 553,784

Selling, administration and general expenses include Rs. 26.238 million (2002: Rs. 22.641 million) forstores and spares consumed.



PensionCurrent service cost 1,275 3,465Interest cost for the year 2,744 11,158Expected return on plan assets (2,372) (10,138)Contribution made by the employees (389) (1,162)Recognition of past service cost 295 1,111Recognition of loss/(gain) 173 (338)

1,726 4,096Gratuity

Current service cost 468 -Interest cost for the year 695 -Expected return on plan assets (1,215) -Recognition of (gain) (264) -

(316) -

In addition to above, salaries, wages and amenities include Rs. 0.911 million (2002: Rs. 1.719 million)and Rs. (0.609) million (2002: Rs. 2.31 million) in respect of provident fund contribution by theParent Company and accumulat ing compensated absences respect ive ly.



Brought forward

107



PensionCurrent service cost 4,672 1,001Interest cost for the year 10,060 3,223Expected return on plan assets (8,696) (2,928)Contribution made by the employees (1,425) (336)Recognition of past service cost 1,083 321Recognition of loss/(gain) 634 (98)

6,328 1,183Gratuity

Current service cost 1,717 604Interest cost for the year 2,546 1,350Expected return on plan assets (4,453) (1,979)Recognition of (gain) (967) (150)

(1,157) (175)

In addition to above, salaries, wages and amenities include Rs. 3.604 million (2002: Rs. 2.290 million)and Rs. 1.399 million (2002: Rs. 2.270 million) in respect of provident fund contribution by theParent Company and accumulat ing compensated absences respect ive ly .

28. Other income

Management and technical fee 5,723 -Rental income - 305Insurance commission from an associated company 3,403 2,944Rental income from investment property - associated companies 17,199 14,354Profit on disposal of fixed assets 20,067 4,120Scrap sales 890 1,206Provisions and unclaimed balances written back 41,970 40,977Agricultural income 1,558 1,100Income on foreign currency deposits - 8,745Income on rupee deposits 469 1,887Profit on outside jobs including Rs. 1.104 million

(2002: Rs. 0.730 million) from associated companies 2,120 1,476Unrealised gain on investment available for sale 11,400 -Others - note 28.1 9,606 5,116

114,405 82,230



108


28.1 These include Rs. 0.953 million (2002: Rs. 0.790 million) in respect of unrealised profit on TFCs ofFirst International Investment Bank Limited, an associated concern.

29. Financial charges

Interest and mark up including commitment charges onLong term foreign currency loans 15,402 34,244Redeemable capital and local loans 111,520 99,442Short term running finances 36,306 65,021Finance lease 6,109 10,239Deferred import duties 2,115 3,470Workers' profit participation fund - 29

Loan handling charges 252 553Exchange loss 653 625Bank charges 4,823 4,958

177,180 218,58130. Other charges

Workers' profit participation fund 60,458 47,633Workers' welfare fund 14,718 20,278Donations - note 33 1,328 1,327

76,504 69,23831. Provision for taxation

For the yearCurrent 299,150 214,000

Deferred (10,300) (27,000)

288,850 187,000Prior years

Current (131,044) 1,596Deferred 93,300 (100)

(37,744) 1,496

251,106 188,496

32. Professional services

The charges for professional services include the followingin respect of auditors' services for:

Statutory audit 652 601Half yearly review 200 280Tax services 3,396 3,729Share transfer, workers’ profit participation fund audit,

management staff pension fund audit, special reportsand certificates for lending agencies and sundryadvisory services 538 795

Out of pocket expenses 266 198

5,052 5,603

109

33. Donations

Names of donees in which a director or his spouse has an interest:

Pakistan Olympic Association, Lahore(Syed Wajid Ali, Chief Executive is thePresident of the Association) - 100

Liaquat National Hospital, Karachi(Syed Wajid Ali, Chief Executive is theChairman of the Hospital) 400 400

Gulab Devi Chest Hospital, Lahore(Syed Wajid Ali, Chief Executive is thePresident of the Hospital) 35 440

Institute of Islamic Culture, Lahore(Syed Wajid Ali, Chief Executive is thePresident of the Institute) 100 -

The All Pakistan Musical Conference, Lahore(Syed Wajid Ali, Chief Executive is thePresident of the Conference) 30 -

34. Remuneration of Chief Executive, Directors and Executives

34.1 The aggregate amount charged in the accounts for the year for remuneration, including certainbenefits, to the Chief Executive, full time working Directors including alternate directors and Executivesof the Group is as follows:

Managerial remuneration 2,385 2,206 10,544 9,466 68,401 62,000Contribution to provident,

gratuity, pension andwelfare funds - - 2,920 2,329 14,018 11,685

Housing 680 549 4,755 4,264 24,822 22,736Utilities 627 718 934 838 8,963 7,820Leave passage 18 - 778 698 1,606 1,334Medical expenses 934 328 257 245 3,936 3,603Club expenses 13 13 30 27 4 6Others - - - - 12,113 9,542

4,657 3,814 20,218 17,867 133,863 118,726

The Group also provides the Chief Executive and some of the Directors and Executives with free transportand residential telephones.


Directors & alternateDirectors

Number of persons

Chief Executive Executives2003186

2002166

20037

20027

20031

20021


110


Pricing methodDescription

111

34.2 Remuneration to other Directors

Aggregate amount charged in the accounts for the year for fee to 3 directors (2002: 3 directors) wasRs. 5,500 (2002: Rs. 5,500).

35. Transactions with related parties

The related parties comprise associated undertakings and directors. The Group in the normal courseof business carries out transactions with various related parties. Amounts due from and to relatedparties are shown under receivables and payables, amounts due from directors is shown underreceivables and remuneration of directors is disclosed in note 34. Other significant transactions withrelated parties are as follows:

Purchase of goods and services Comparable uncontrolled 249,080 243,107Sale of goods and services Cost plus 1,206,969 1,051,984Rental income Cost plus 17,199 14,354Royalty and technical fee Technical licence agreement

approved by the State Bank of Pakistan 12,361 9,980

All transactions with related parties have been carried out on commercial terms and conditions underthe above pricing methods.

36. Capacity and production

Paper and paperboard produced - tonnes 101,900 87,000 86,641 72,642Paper and paperboard converted - tonnes 70,000 70,000 66,870 59,808Plastics all sorts converted - tonnes 7,500 6,000 5,850 5,236Inks produced - tonnes 2,375 2,375 2,149 1,631Flexible packaging material - meters 000 54,000 44,400 19,954 20,995

The variance of actual production from capacity is on account of the product mix.

37. Rates of exchange

Liabilities in foreign currencies have been translated into Rupees at USD 1.7355 (2002: USD 1.7094),EURO 1.3801 (2002: EURO 1.6300), SFR 2.1529 (2002: SFR 2.3719), SEK 12.5313 (2002: SEK14.9477), GBP 0.9745 (2002: GBP 1.0661), YEN 185.5632 (2002: YEN 202.8398) and SLR 162.2323(2002: SLR 158.5540) equal to Rs. 100.

Actual production20022003

Capacity20022003

38. Cash generated from operations

Profit before taxation 1,339,557 917,947Adjustments for:

Depreciation/amortisation on fixed assets 474,147 448,079Depreciation on investment property 569 413Amortisation of leased assets 11,184 11,000Amortisation of goodwill 10,017 8,421Preliminary/pre-operational expenses written off - (4,856)Provision for accumulating compensated absences and gratuity 9,527 7,469Retirement and other benefits accrued 12,811 9,199Exchange adjustments (2,060) (1,255)Net profit on disposal of fixed assets (20,067) (4,120)Financial charges 177,180 218,581Unrealised profit on investments

Held to maturity (953) (1,033)Available for sale (11,400) -

Share of profit from associated companies (690,549) (578,779)

Profit before working capital changes 1,309,963 1,031,066

Effect on cash flow due to working capital changes

(Increase) in stores and spares (19,502) (37,748)Decrease/(increase) in stock-in-trade 36,608 (110,139)(Increase)/decrease in trade debts (56,414) 41,853(Increase)/decrease in loans, advances, deposits, prepayments and other receivables (34,034) 26,555Increase/(decrease) in creditors, accrued and other liabilities 36,868 (59,849)

(36,474) (139,328)

1,273,489 891,73839. Cash and cash equivalents

Cash and bank balances 118,298 101,422Finances under mark up arrangements (641,869) (884,229)

(523,571) (782,807)

40. Combined earnings per share

40.1 Combined basic earnings per share

Net profit for the year Rupees in thousand 923,004 635,218Weighted average number of

ordinary shares Numbers 47,537,080 47,537,080Combined basic earnings per share Rupees 19.42 13.36

(Rupees in thousand)2003 2002

112

41. Financial assets and liabilities

Financial assets

On balance sheet

Long-term investments - 7,985 7,985 - 31,425 31,425 39,410 7,058 39,410 7,058Loans to employees - - - 656 1,005 1,661 1,661 1,087 452 -Long-term security deposits - - - - 3,356 3,356 3,356 3,128 3,356 3,128Trade debts - - - 652,640 - 652,640 652,640 596,226 652,640 596,226Advances, deposits and prepayments:

Trade deposits - - - 9,345 - 9,345 9,345 3,066 9,345 3,066Security deposits - - - 880 - 880 880 830 880 830Profit receivable on bank deposits 12 - 12 - - - 12 32 6 28Others - - - 734 - 734 734 253 734 253

Cash and bank balances 16,755 - 16,755 101,543 - 101,543 118,298 101,422 28,633 17,090

16,767 7,985 24,752 765,798 35,786 801,584 826,336 713,102 735,456 627,679Off balance sheet - - - - - - - - - -

Total 16,767 7,985 24,752 765,798 35,786 801,584 826,336 713,102 735,456 627,679

Financial liabilities

On balance sheet

Non participatory redeemable capital - secured 50,000 - 50,000 - - - 50,000 150,000Non participatory redeemable capital - unsecured - 850,000 850,000 - - - 850,000 850,000Liabilities against assets subject to

finance lease 35,986 1,702 37,688 - - - 37,688 70,400Long-term loans and other payables - secured 25,285 83,392 108,677 - - - 108,677 131,465Finances under mark up arrangements 641,869 - 641,869 - - - 641,869 884,229Creditors, accrued and other liabilities - - - 423,139 - 423,139 423,139 386,045

753,140 935,094 1,688,234 423,139 - 423,139 2,111,373 2,472,139Off balance sheet

Contracts for capital expenditure - - - 42,616 - 42,616 42,616 86,324Guarantees - - - 3,726 - 3,726 3,726 2,865Letters of credit other than for capital expenditure - - - 265,785 - 265,785 265,785 277,214

- - - 312,127 - 312,127 312,127 366,403

Total 753,140 935,094 1,688,234 735,266 - 735,266 2,423,500 2,838,542

On balance sheet gap (736,373) (927,109) (1,663,482) 342,659 35,786 378,445 (1,285,037) (1,759,037)

Off balance sheet gap - - - (312,127) - (312,127) (312,127) (366,403)

The effective interest/mark up rates for the monetary financial assets and liabilities are mentioned in respective notes to the financial statements.

Interest/mark up bearing

Maturityupto one

year

Maturityafter one

yearSubtotal

Maturityupto one

year

Maturityafter one

yearSubtotal 2003 2002 2003 2002

Non interest bearing Total Credit Risk


40.2 Combined diluted earnings per share

There is no dilution effect on the basic earnings per share of the Group as the Group has no suchcommitments.

113

41.1 Financial risk management objectives

The Group's activities expose it to a varietyof financial risks, including the effects ofchanges in foreign exchange rates, marketinterest rates such as State Bank of Pakistan’srepo rate and Treasury Bills rate, credit andliquidity risk associated with various financialassets and liabilities respectively as referredto in note 40 and cash flow risk associatedwith accrued interests in respect of borrowingsas referred to in note 5 and 6.

The Group finances its operations throughequity, borrowings and management ofworking capital with a view to maintaining areasonable mix between the various sourcesof finance to minimize risk.

Taken as a whole, risk arising from theGroup's financial instruments is limited asthere is no significant exposure to market riskin respect of such instruments.

(a) Concentration of credit risk

Credit risk represents the accountingloss that would be recognised at thereporting date if counter parties failedcompletely to perform as contracted.The Group's credit risk is primarilyattributable to its trade debts and itsbalances at banks. The credit risk onliquid funds is limited because thecounter parties are banks withreasonably high credit ratings. TheGroup has no significant concentrationof credit risk as exposure is spread overa large number of counter parties inthe case of trade debts. Out of the totalfinancial assets of Rs. 826.336 million(2002: Rs. 713.102 million) financialassets which are subject to credit riskamount to Rs. 735.456 million (2002:Rs. 627.679 million). To manageexposure to credit risk, the Groupapplies credit limits to its customersand also obtains collaterals, whereconsidered necessary.

(b) Currency risk

Currency risk is the risk that the valueof a financial instrument will fluctuatedue to changes in foreign exchangerates. Currency risk arises mainly wherereceivables and payables exist due totransactions with foreign buyers andsuppliers. Payables exposed to foreigncurrency risks are covered partiallythrough forward foreign exchangecontracts.

The following forward exchangecontracts have been entered into as atDecember 31, 2003 to hedge the foreigncurrency liabilities which are due withinthe next four months:

Forward exchange contracts


Purchase value 56,588Fair value 59,902

(c) Interest rate risk

Interest rate risk is the risk that thevalue of a financial instrument willfluctuate due to changes in marketinterest rates. The Group usuallyborrows funds at fixed and marketbased rates and as such the risk isminimized. Significant interest rate andcash flow risk exposures are primarilymanaged by contracting floor and capof interest rates as referred to innote 6.

(d) Liquidity risk

Liquidity risk reflects an enterprise'sinability in raising funds to meetcommitments. The Group follows aneffective cash management andplanning policy to ensure availability offunds and to take appropriate measuresfor new requirements.

114

41.2 Fair value of financial assets and liabilities

The carrying values of all financial assets and liabilities reflected in the financial statements approximatetheir fair values except for long-term investments which are stated at cost / amortised cost. Fair valueis determined on the basis of objective evidence at each reporting date.

42. Number of employees 2003 2002

Number of employees as at December 31 3,305 3,206

43. Detail of subsidiaries

Packages Lanka (Private) Limited December 31, 2003 79.07% Sri LankaCoates Lorilleux Pakistan Limited December 31, 2003 54.98% Pakistan

44. Date of authorisation for issue

These financial statements were authorised for issue on January 24, 2004 by the Board of Directors.

45. Corresponding figures

Corresponding figures have been re-arranged, wherever necessary, for the purposes of comparison.However, no significant re-arrangements have been made.

Accountingyear end

Percentageof holding

Country ofincorporationName of the subsidiaries

115



Year toDecember 31,

2003

Year toDecember 31,

2002

Six months toDecember 31,

2000

ASSETS EMPLOYED:Fixed Assets at Cost 6,881,590 6,512,007 5,773,725 5,360,950Accumulated Depreciation/Amortisation 3,927,588 3,546,508 3,130,521 2,748,913Fixed Assets at Book Value 2,954,002 2,965,499 2,643,204 2,612,037Capital Work-in-Progress 344,747 196,902 445,143 257,381Net Current and Other Assets 1,353,162 1,088,165 1,023,154 855,630

Net Assets Employed 4,651,911 4,250,566 4,111,501 3,725,048

FINANCED BY:Paid up Capital 475,371 475,371 475,371 452,734Reserves 2,753,287 2,343,839 2,021,227 1,832,902Shareholders' Equity 3,228,658 2,819,210 2,496,598 2,285,636Long-Term & Deferred Liabilities 1,423,253 1,431,356 1,614,903 1,439,412

Total Funds Invested 4,651,911 4,250,566 4,111,501 3,725,048

Invoiced Sales 6,293,219 5,360,884 5,157,816 2,238,033Material Consumed 2,263,462 1,925,656 1,911,866 858,044Gross Profit 1,193,713 949,559 891,383 354,276Employees Remuneration 550,566 506,552 471,220 218,009Operating Profit 683,929 459,674 474,027 185,588Profit before Tax 1,036,905 797,225 514,441 241,927Profit after Tax 813,513 655,372 424,879 193,241Cash Dividend 404,065 332,760 213,917 90,547Cash Dividend % 85.00 70.00 45.00 20.00Stock Dividend - - - 22,637Stock Dividend % - - - 5.00Earnings per Share - rupees 17.11 13.79 8.94 4.07Taxes, duties and levies 1,426,321 1,286,246 1,213,008 499,232Market Value per Share - KSE 100 Index-Rs. 167.90 88.50 60.50 66.00

KEY RATIOS:Debt : Equity Ratio 21:79 25:75 30:70 28:72Current Ratio 1.44 1.29 1.24 1.01Inventory Turnover Ratio 4.93 4.48 5.10 2.68Gross Profit Ratio (%) 18.97 17.71 17.28 15.83Profit before Tax Ratio (%) 16.48 14.87 9.97 10.81Return on Capital Employed (%) 29.28 23.81 19.01 9.01Interest Cover Ratio 8.06 5.58 2.95 2.97Total Assets Turnover Ratio 1.02 0.90 0.84 0.38Price - Earning Ratio 9.81 6.42 6.77 16.22

Ten-Year Summary(Rupees in thousand)

Year toDecember 31,

2001

116

Pack

ages

Limite

d 200

3

5,323,073 4,640,648 4,535,229 4,400,635 3,516,219 2,740,7702,568,522 2,240,099 1,922,308 1,609,295 1,298,855 1,052,6922,754,551 2,400,549 2,612,921 2,791,340 2,217,364 1,688,078

79,696 351,722 7,183 21,391 637,533 368,7451,063,658 1,221,874 1,461,465 1,617,564 1,673,556 1,382,448

3,897,905 3,974,145 4,081,569 4,430,295 4,528,453 3,439,271

411,577 411,577 357,893 318,127 284,042 284,0421,771,365 1,515,524 1,338,716 1,194,192 1,137,892 984,3892,182,942 1,927,101 1,696,609 1,512,319 1,421,934 1,268,4311,714,963 2,047,044 2,384,960 2,917,976 3,106,519 2,170,840

3,897,905 3,974,145 4,081,569 4,430,295 4,528,453 3,439,271

4,165,603 3,925,696 3,512,272 3,154,006 3,022,437 1,339,5951,353,832 1,206,286 1,074,792 1,077,569 1,083,102 442,081

790,385 941,472 627,269 511,133 587,033 304,735384,556 389,069 332,943 296,783 280,760 129,354482,147 641,695 370,745 267,251 344,218 198,633551,224 512,389 162,753 110,684 195,257 209,335428,703 384,154 220,079 90,385 153,503 150,318172,862 153,662 35,789 - - 35,505

42.00 37.34 10.00 - - 12.5041,158 - 53,684 39,766 34,085 -10.00 - 15.00 12.50 12.00 -9.47 9.33 6.15 2.84 5.40 5.29

948,344 809,483 624,974 852,397 894,451 449,43460.00 41.00 36.00 62.00 90.00 135.00

35:65 45:55 55:45 63:37 66:34 60:401.05 1.00 1.00 1.14 1.30 1.336.40 7.17 8.15 7.23 6.70 2.95

18.97 23.98 17.86 16.21 19.42 22.7513.23 13.05 4.63 3.51 6.46 15.6320.03 21.20 14.62 13.97 11.99 10.352.85 2.16 1.31 1.21 1.74 4.180.70 0.62 0.56 0.51 0.53 0.316.34 4.39 5.85 21.83 16.67 25.52

Year toJune 30,

2000

Year toJune 30,

1999

Year toJune 30,

1998

Year toJune 30,

1997

Six months toJune 30,

1995

Year toJune 30,

1996

117

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Documents

Contents - Packages Limited€¦ · Contents 003 Introduction 005 Company Information 006 Highlights 009 Mission Statement 011 Strategic Vision and Objectives 013 Environment, Health